CYBX and TDS Strategy

The writer was trying to lose money by establishing covered position with a May $25 call option. The only problem was . . . the stock was trading close to $20 in May. A few points worth considering:

♦ The writer will continue to point out the difference in philosophy between SYSCW positions and investment strategies that suggest taking losses . . . meaning 'real' losses. Such would have been the case with this stock as it was trading below $15.50 in the middle of August 2006. Is this below a 'stop loss' or not?

♦ When the TDS option expired in May, the writer sold another call at the same strike price for January 2007. Note that the total cash generated for this TDS position is over 20%.

♦ It is not November 23, 2006 and CYBX is trading above the $25 strike price. This position can now be closed, if needed for the 2006 tax year.

The writer may decide to convert this holding to a Dollar Cost Averaging position and combine it with the other CYBX holding in the account. The decision will be based on the change in value of the stock over the next three to four weeks. The concept to take from this commentary is the idea the here is yet another example of a stock that lost significant value, and the covered writer's reaction to that loss.

CYBX has appreciated significantly of late. Most of the existing calls are at $25 and higher in various portfolios. This stock is important to watch over the coming weeks, particularly for Interim Trade positions. If the stock continues to appreciate, the Buy Back and Roll Out, or the Roll Out &Up strategies many be needed to protect the stock from being sold at an unfavorable strike price.

The Math Exercise for new positions in CYBX is compelling. Here is a little 'nuance' strategy to consider. Lets say you have 100 shares of CYBX with a $35 cost basis and currently are using the stock to cover a Jan $25 call option. One thought would be to buy 100 shares of stock now ($25.88 on November 23^rd), and sell a '08 Jan $30 LEAP against it. Why?

The reason is because the stock positions do not know which call is written against a particular holding. You then just switch the option positions in the Position Tracker. Give the $25 call that is coming up to these new shares (purchased for around $25 - $26), and give the new '08 Jan LEAP to the old position.

Think about it . . . in January, if CYBX is still trading above $25, these new shares will be sold, you switched the option, so the premiums go with this new purchase. BUT . . . the older holding now has a $30 option for January 2008 instead of the Jan $25 call. This is the Pre-Recover after Expiration strategy. The investor is selling the option now that will be covered by existing shares, and at the same time 'switching' the existing option to the new shares.

In a taxable account . . . this is an interesting way to establish a TDS position. Not only would you switch the option to the new stock, but you would switch cost basises for the stock when posting to the Gains Tracker. The option was exercised . . . ends in a gain, and stock was sold, which could be made out to show a loss given that LIFO is specified. The key is to think of it ahead of time so that both lots of stock are held for a minimum of thirty days.

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.

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

Historical Data			Open Positions
				Stock	Cash	Total Cash	Value as of
Date	Strategy	Status	Position	Investment	Generated	Generated	22-Nov-06
7-Apr-06	Initial Stock Purchase		Buy 100 CYBX @ 26.3399	($2,640.99)			$2,588.00
TDS	Current Price	$25.88	Cyberonics, Inc.
7-Apr-06	Initial Call Option		Sell May $25 call @ 2.35	Expired 5/20/06	$226.74
7-Apr-06	TDS Potential	($1,835.76)
26-May-06	Continued Trade		Sell Jan $25 call @ 3.20		$311.74
	Cash in Hand	20.39%				$538.48