CY and Value

Systematic Covered Writing

... more than just covered calls!

This stock lost over half it's value during the holding period! The stock was purchased on February 17, 2004 for $21.81 per share. On September 28, 2004, the stock closed at $8.60 per share. Keep that in mind as you consider this example.

Additional information is always available in the frequently asked questions section and the Glossary on the SysCW website. Here are the links to and the SysCW . Please note: the information presented below is for educational purposes only! This is an example of one of the strategies contained within the Systematic Covered Writing system. Be advised of the TERMS OF USE, located at the bottom of this page.

CY Cypress Semiconductor

THE TRADE DATE :    January 12, 2006
THE STOCK: CY manufactures a broad line of high-performance digital and mixed-signal integrated circuits.

THE STRATEGY:   Dollar Cost Averaging

THE THEORY:   There will be times when the value of a stock declines. The Systematic Covered Writing philosophy is ... don't panic, just follow the plan. In this example, watch how the Dollar Cost Averaging strategy is used repeatedly on the same position to lower the cost basis.
THE COMMENTARY:     Starting with the existing position . . .

Date	Strategy	Position	Investment	Generated	Total
17-Feb-04	Initial Stock Purchase	Buy 100 CY @ 21.81	($2,191.99)
		Cypress Semiconductor Corporation
17-Feb-04	Initial Call option	Sell Sep $22.50 call @ 2.20		$227.50
					$227.50

Every position starts somewhere as the data for this Cypress Semiconductor position illustrates. As can be seen, the position began back in February of 2004 with the purchase of 100 shares and the sale of the Sep $22.50 call option. As luck would have it, CY was trading at close to $10 in September! Yes, a loss of over 50% of the initial purchase price. While not the best trade on the planet, the covered writer knows exactly what to do. Purchase more shares at the lower price and sell calls above that purchase price. This is an example of the SysCW Dollar Cost Averaging Strategy. Here is the updated position.

Date	Strategy		Position	Investment	Generated	Total
17-Feb-04	Initial Stock Purchase		Buy 100 CY @ 21.81	($2,191.99)
			Cypress Semiconductor Corporation
17-Feb-04	Initial Call option		Sell Sep $22.50 call @ 2.20	Expired 9/18/04	$227.50
20-Sep-04	Dollar Cost Averaging		Buy 100 CY @ 10.03	($1,013.99)
Combine	$3,205.98	200 @ $16.03	Combined Position
20-Sep-04	Continued Trade		Sell two '06 Jan $15 calls @ 1.05		$196.01
	Cash In Hand	13.21%				$423.51

Notice in the yellow section that the net combined investment is listed as well as the net price per share. The new strike price is $15 which is only $1.03 below the cost basis. The covered writer is simply waiting for the stock to recover. Sure . . . the writer could have sold the stock at a loss and tried to recover that loss with an alternate position, but this would not be following the Systematic Covered Writing philosophy. If the writer rarely has a loss, then the writer never needs a 'huge' gain to make up for said loss. Some positions will pay more per unit of time than others. This is okay. Now let's update the position one more time . . .

Date	Strategy		Position	Investment	Generated	Total
17-Feb-04	Initial Stock Purchase		Buy 100 CY @ 21.81	($2,191.99)
	Current Price	$16.44	Cypress Semiconductor Corporation
17-Feb-04	Initial Call option		Sell Sep $22.50 call @ 2.20	Expired 9/18/04	$227.50
20-Sep-04	Dollar Cost Averaging		Buy 100 CY @ 10.03	($1,013.99)
Combine	$3,205.98	200 @ $16.03	Combined Position
20-Sep-04	Continued Trade		Sell two '06 Jan $15 calls @ 1.05	Rolled 1/12/06	$196.01
12-Jan-06	Buy Back & Roll Out & Up		Buy two Jan $15 calls @ 1.40		($289.50)
12-Jan-06	Appreciated Trade		Sell two '07 Jan $17.50 LEAPS @ 2.45		$480.47
	Cash In Hand	19.17%				$614.48

In January 2006, the stock was trading above the $15 strike price. The covered writer used the SysCW Buy Back & Roll Out & Up strategy to increase the strike price from $15 to $17.50. This position is now in an "Appreciated Trade" status because the strike price is above the net purchase price of $16.03 per share. It is important to realize that this is a stock that at one point had lost over 50% of the original value.

As of December 27, 2006, Cypress Semiconductor was trading at $16.33 with a little over three weeks to go before January expiration.

The covered writer uses this same thought process today when a stock loses value. The rational is based on one of the fundamental principals of Systematic Covered Writing which states that someday the price of a stock will be higher than when it was purchased. As of this writing, "someday" has arrived for Cypress Semiconductor thanks to the use of the Dollar Cost Averaging strategy.

_____Update 2007_______
The Position Tracker

			Systematic Covered Writing
			. . . More than just covered calls . . .
		SysCW Position Tracker

Historical Data			Open Position
				Stock	Cash	Total Cash	Value as of
Date	Strategy	Status	Position	Investment	Generated	Generated	29-Jan-07
26-Jan-04	Initial Stock Purchase		Buy 100 CY @ 22.17	($2,258.35)			$1,823.00
	Current Price	$18.23	Cypress Semiconductor Corporation
26-Jan-04	Initial Call Option		Sell Sep $22.50 Call	Expired 9/17/04	$253.63
1-Nov-04	Dollar Cost Averaging		Buy 100 CY @ 10.55	($1,062.00)			$1,823.00
$CA	$3,320.35	200 @ $16.60	Combined Position
1-Nov-04	Interim Trade		Sell two Mar $12 calls @ .45		$79.99
17-Mar-05	Buy Back & Roll Out & Up		Buy two Mar $12.50 calls @ .65		($139.50)
17-Mar-05	Interim Trade		Sell two '06 Jan $15 LEAPS @ 1.45		$280.49
19-Jan-06	Buy Back & Roll Out & Up		Buy two Jan $15 calls @ 1.25		($259.50)
19-Jan-06	Appreciated Trade		Sell two '07 Jan $17.50 LEAPS @ 2.25	Expired 1/19/07	$440.48
29-Jan-07	New Continued Trade		Sell two Feb $17.50 calls 1.05		$200.49

	Cash in Hand	25.78%				$856.08

Well . . . the Jan $17.50 calls expired. The writer decided to go ahead and add another $200 cash to the position by selling one month Feb $17.50 calls. The writer looks at $200.49 and sees an annual cash generation rate of over 70% per year based on the investment. Who knows, maybe CY will falter and close below $17.50 in February.
I don't want to keep harping on the same subject, but isn't it great that the writer could continue trading this position even though it lost over half its 'value'. The benefit of Dollar Cost Averaging should be obvious!
PLEASE NOTE THAT THIS EXAMPLE IS NOT TO BE CONSIDERED AS A RECOMMENDATION TO INVEST IN CY 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 suggesting 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 provide for 'educational purposes' for the sole purpose of illustrating the Systematic Covered Writing strategies.

Thank you!