Recover After Expiration - The Math Exercise
This SysCW Recover after Expiration example is intended to illustrate this strategy being used on a stock
that has lost significant value. The strategy is used each
time an option expires worthless, which basically means the writer maintains ownership of the underlying stock as well as the cash that
someone lost when they purchased the call option. 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!
RNVS - Renovis, Inc.
STRATEGY COMMENTS: Boy . . . here we have a case where the underlying stock is in the toilet as far as its value is concerned.
Please note that this is exactly why the writer will sell the call below the trading price of the stock. This is not a matter of
luck, but rather the SysCW process in action.
The goal of Systematic Covered Writing is to be paid for owning stock. Looks
like that is happening in spite of the fact that the stock has lost over 75% of its initial value.
This position happens to be in Portfolio Three of the online portfolios. As of July 14, 2007, the only additional
comment about this holding would be to realize that if the stock continues to trade below $5, the writer will probably use the SysCW
Dollar Cost Averaging strategy. It is assumed that an investment generating over 45% in new cash in less than a year is 'okay' . . . not
great mind you . . . but okay.
Obviously, if the stock were to begin appreciation, the $5 strike price would be
increased. For now . . . the writer is in a wait and see mode.
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 RNVS 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