Systematic Covered Writing
... more than just covered calls!
This stock lost over half its value during the holding period! Some shares of this stock was purchased on January 24, 2004 for $23.17 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.
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 . . . in November of 2003, the
writer added a second 100 share lot in January of 2004. Both of these initial 2004 Jun $22.50 calls expired.
On June 21, 2004, with CY trading at $13.50, two of the Dec $17.50 calls were sold as a Interim Trade strike price.
As you can see, both of these also expired in December.
The data also shows that on December 20, 2004,
Cypress Semiconductor was trading at less than half the original purchase price. I think it would be fair to say this position was
a 'loser' . . . or as some would say . . . the wrong stock! (Continued below...)
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Systematic Covered Writing |
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. . . More than just covered calls . . . |
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SysCW Position Tracker |
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Historical Data |
Open Position |
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Stock |
Cash |
Total Cash |
Value as of |
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Date |
Strategy |
Status |
Position |
Investment |
Generated |
Generated |
3-Nov-07 |
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11-Nov-03 |
Initial Stock Purchase |
Buy 100 CY @ 22.17 |
($2,224.00) |
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Current Price |
$36.53 |
Cypress Semiconductor Corp |
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11-Nov-03 |
Initial Call Option |
Sell Jun $22.50 call @ 3.40 |
Expired 6/18/04 |
$331.48 |
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24-Jan-04 |
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2nd Position |
Buy 100 CY @ 23.17 |
($2,324.00) |
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24-Jan-04 |
Initial Call Option |
Sell Jun $22.50 call @ 3 |
Expired 6/18/04 |
$291.48 |
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21-Jun-04 |
Interim Trade |
Sell two Dec $17.50 calls @ .65 |
Expired 12/18/04 |
$119.99 |
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22-Dec-04 |
Dollar Cost Averaging |
Buy 100 CY @ 11.09 |
($1,116.00) |
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$CA |
$5,664.00 |
300 @ $18.88 |
Combined Positions in June 2004 |
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22-Dec-04 |
Interim Trade |
Sell three '06 Jan $15 LEAPS @ 1 |
Rolled 1/04/06 |
$288.49 |
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4-Jan-06 |
Buy Back & Roll Out & Up |
Buy three Jan $15 calls @ .70 |
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($220.75) |
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4-Jan-06 |
Interim Trade |
Sell three '07 Jan $17.50 LEAPS @ 19.5 |
Expired 1/22/07 |
$574.22 |
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23-Jan-07 |
Continued |
Sell three Jun $20 calls @ .40 |
Rolled 5/25/07 |
$109.24 |
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25-May-07 |
Buy Back & Roll Out |
Buy three Jun $20 calls @ 1.30 |
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($400.75) |
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25-May-07 |
Continued |
Sell three Jan $20 LEAPS @ 2.85 |
Closed 10/29/07 |
$844.23 |
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29-Oct-07 |
Buy calls to close |
Buy three Jan $20 calls @ 16.70 |
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($5,020.75) |
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29-Oct-07 |
Sell stock to Close Position |
Sell 300 CY @ 36.2701 |
$10,873.86 |
$5,209.86 |
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29-Oct-07 |
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Net Cash Gained |
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$2,126.74 |
Annualized |
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1374 |
Days (approx avg.) |
Net Percentage Gained |
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37.55% |
9.97% |
In December, the writer elected to lower the cost basis by purchasing 100 additional shares @ $11.09. This
thought process is possible because Systematic Covered Writing is not a get rich quick investment
strategy.
Now follow the activity in the Position Tracker as the strike price was increased from $15 to $17.50, and
then to $20, which happened to be above the new combined cost basis.
Okay . . . Now it's October 2007, and the
position was closed. As you can see . . . this losing position generated 9.97% annually . . . in spite of the loss in value.
Some would look at the fact that the stock went from the low twenties to $8.45 a share on September 28, 2004 and say this was a 'poor'
strategy. That would definitely be the case if one pulled the plug and quit.
On the other hand . . . in spite
of the fact that the stock traded below $8.50 during the holding period, the $5,664.00 net investment ended up generating a net profit
of $2,126.74. Note that all the time this 'losing' position was generating slightly less than 10% each year, other positions in
the same portfolio were generating significantly more as the Initial Call Options were being exercised.
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!