Systematic Covered Writing

...More than just covered calls . . .

Recover After Expiration - The Math Exercise

This SysCW Recover after Expiration  example is intended to illustrate this strategy, which is used each time an option expires worthless. In order to know what to do in the future, it is important to understand what we did in the past.  This is a key strategy used in the Systematic Covered Writing process.  Writers will profit from stocks that appreciate, and they will also generate addition cash with the stocks that lose value or  fail to reach a given strike price by expiration.

Keep in mind that a position is not over . . . until it's over!

Current Examples

ELN - Elan Corporation

STRATEGY COMMENTS: Take a look at the data and notice that the first two $15 strike price options expired as the stock was 'out of favor' for quite some time. In fact, as of today (June 16, 2007), this stock had traded as low as $11.70 during the last year. For those that look at  value, that is a loss of more than 23%, based on the purchase price of $25.29 a share.

Again . . . consider the data, and the fact that today ELN closed at $21.50 a share.  With a month to go before the July expiration, it would appear that this position will end in July. You should be able to see that this position will end with an annualized back to cash gain that is in excess of 15%.

      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 16-Jun-07
16-Aug-06 Initial Stock Purchase Buy 100 ELN @ 15.2879 ($1,526.75)     $2,150.00
  Current Price $21.50 Elan Corporation, plc (ADR)        
16-Aug-06 Initial Call Option Sell Jan $15 call @ 2.60 Expired 1/19/07 $249.25 Email 8/16  
29-Jan-07 Continued Position Sell Apr $15 call @ .5 Expired 4/21/07 $39.25    
27-Apr-07 Continued Position Sell Jul $15 call @ 1.10   $99.25    
               
  Cash in Hand 25.40%       $387.75  DA

Needless to say, this position should end next month and by maintaining the $15 strike price, the writer can simply allow the option to be exercised and the stock assigned.  Comments and or questions are always welcome.   rlcoveru@cox.net

PLEASE NOTE THAT THIS EXAMPLE IS NOT TO BE CONSIDERED AS A RECOMMENDATION TO INVEST IN ELN 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!

SYSTEMATIC COVERED WRITING
Copyright © 2005. All rights reserved.
Revised: 02/23/11