Systematic Covered Writing

... more than just covered calls!

Initial Position - The Math Exercise

This SysCW Initial Position was emailed to subscribers on the day the transactions were executed.  In order to know what to do in the future, it is important to understand what we did in the past.

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The Email Comments:

Not only is it new, it’s NEW! When you first look at the Math Exercise, you may come to the conclusion that the covered writer is a couple wrenches short in the tool box, but there's more to this ‘story’ than just the call options. Currently, this stock pays over 20% in dividends!

Dividends have been paid since 2002 and owners of record as of December 27th [this year] will receive $1.90 per share on Jan. 31 ’07. If you add this 'guaranteed' $190 to this position you will find that it brings the downside protect to over 15%.

Here’s the deal though, . . . just because the dividend payout has been $1.70, $1.75, $1.80, $1.85, and now $1.90 over the last five quarters does not guarantee continuation! Having said that . . . this is definitely not a tech holding, and adds to the diversification process. Thanks to the watchful eyes of a subscriber, this stock is now on the Current List as a dividend position.

Note: . . . IF the dividends average $1.80 per quarter over the next twelve months, the back to cash gain for this position will be a hair less than 20% IF the option is exercised.

Have a great day!

The Covered Writer

	Systematic Covered Writing
	… more than just covered calls!
	Initial Position:    The Math Exercise
	Position:	100   NEW   With   Jan 2008   $35.00   LEAP
	Stock Symbol			NEW		Call Symbol			YUNAG
	Stock Purchase Price			$37.640		Call Sold Price			$4.60
	Number of Shares			100		Call Strike Price			$35.00
	Trade Entry Date			16-Nov-06		Expiration M & Y			1	2008
	Net Cash Generated			$451.75		Net Stock Investment			$3,770.99
	Net Return if Called			$163.76		Annualized  if Called (1)			3.70%		(A)
	Cash Required for Trade					$3,319.24
	Percentage Recovered w/Option					11.98%	(B)
Days Until Expiration & Expire Date						428		18-Jan-08

* The net cash generated divided by the net cash invested. This is the 'downside protection'. This is not a profit percentage. It could be called the 'Stock Ownership Risk Reduction Percentage'.

 (1) The Annualized percentage rate is calculated by dividing the Net Return if Called by the Net Stock Investment and expressing the result as a percentage. This is the return for the period. Now divide this percentage by the duration of the trade in days and multiply the result by 365 to 'annualize the return'. It is important to realized that an assumption is being made that the same (or similar) transactions could be executed over the course of a year. There is no guarantee that this could be accomplished. Also note that the shorter the duration of the position, the more significant this caution becomes.

Comment: The guidelines for establishing an Initial Position using Systematic Covered Writing, requires a minimum potential back to cash return percentage (A), if the option is exercised, coupled with a minimum percentage (B) of the original investment generated by selling the call option. It is up to the writer to decide what these percentages should be. The SysCW recommendation is for both of them to be at least 15%. Remember this is a guideline not a hard fast rule. For diversification purposes, there may be times when it is necessary to hedge a little.

 

PLEASE NOTE THAT THIS EXAMPLE IS NOT TO BE CONSIDERED AS A RECOMMENDATION TO INVEST IN AGIX STOCK OR ANY OTHER EQUITY.  THE INFORMATION IS PROVIDED FOR EDUCATIONAL PURPOSES ONLY.  THERE IS NO GUARANTEE THAT SIMILAR TRANSACTIONS CAN BE EXECUTED IN THE FUTURE. INVESTING IN THE STOCK MARKET INVOLVES RISKS, DO SO ONLY WITH A KNOWLEDGE AND UNDERSTANDING OF THE RISKS INVOLVED!

The information provided above is for informational purposes only, and no mention of a particular security constitutes a recommendation to buy, sell, or hold that or any other security, or that any particular security, portfolio of securities, transaction, investment strategy is suitable for any specific person. You further understand that the Covered Writer will not advise you personally concerning the nature, potential, value or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. To the extent any of the information available on this website may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person. Always remember that past results are not necessarily indicative of future performance.

These are the terms of use.  Why are they here?  Because the examples provided are real.  The transactions actually took place.  The dates are real, the positions are real.  Some transactions will have been executed on the day you receive the email.  What you are agreeing to, is the fact that in no way is it being suggested that you can, or should, enter a similar position.  Why?  Because that would be providing investment advice and the Covered Writer is not authorized to do that.  There is also no guarantee that similar transactions could be executed at any time in the future. Only licensed brokers are allowed to provide investment advice.  Therefore, you are agreeing that the preceding example was provided for 'educational purposes' for the sole purpose of illustrating the Systematic Covered Writing strategies.

Thank you!

SYSTEMATIC COVERED WRITING
Copyright © 2006. All rights reserved.
Revised: 02/05/07