Systematic Covered Writing

 . . . more than just covered calls . . .

Tax strategies are used in the Systematic Covered Writing process to defer taxes. This is no different that claming all the deductions possible to reduce your earned income tax liability.  Having said that . . . please verify this process with your CPA .  It is important that your professional advisors are on the same page as your strategies.

As with all SysCW examples, the transactions listed in the information that follows took place on the dates listed.  Note that historical executions of various transactions may, or may not, be repeated in the future,

Tax Deferral Strategy Example

THE DATE: October 12, 2006

THE STOCK: DAKT

THE EXISTING POSITION:   The information below was emailed to subscribers.  The data begins with a presentation of how the position would look in the Position Tracker prior to closing the TDS (lower) position.  As you can see, the TDS position was emailed to subscribers on 9/07/06.  If you trade in a taxable account . . . how much could you safe if you were able to defer taxes from year to year?

      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 12-Oct-06
6-Jul-06 Initial Stock Purchase Buy 100 DAKT @ 30 ($3,007.00)     $2,224.00
  Current Price $22.24 Daktronics, Inc.        
6-Jul-06 Initial Call Option Sell Jan $30 call @ 4.50   $441.73    
6-Jul-06              
  Cash in Hand 14.69%       $441.73  
7-Sep-06 Initial Stock Purchase Buy 100 DAKT @ 21.1486 ($2,121.86)     $2,224.00
TDS Current Price $22.24 Daktronics, Inc.        
7-Sep-06 Initial Call Option Sell Oct $20 call @ 1.85   $176.74    
7-Sep-06 TDS Potential ($847.26)       Email 9/07  
Cash in Hand 8.33%       $176.74  
               
               
  Today is day 35, the TDS strategy recommends closing the TDS position as soon as a profit can be  
  realized after the 30 day holding period has transpired.  There are a number or reasons for this, with one of   
  them being the uncertainty of the market! The purpose of a TDS position is to 'create' a loss without losing.  
  With that focus in mind the position was closed this morning!  
               
               
               
  To create the loss, the TDS position will be closed        
               
               
               
Section Two The TDS Position is Closed        
               
Close Position Report
        Stock Cash Total Cash  
Date Account Status Position Investment Generated Generated Annualized
7-Sep-06 Initial Stock Purchase Buy 100 DAKT @ 21.1486 ($2,121.86)      
TDS     SanDisk Corporation        
7-Sep-06 Initial Call Option Sell Oct $20 call @ 1.85   $176.74    
7-Sep-06 TDS Potential ($847.26)       Email 9/07  
12-Oct-06 Buy TDS call to Close Buy Oct $20 cakk @ 2.35   ($243.25)    
12-Oct-06 Sell Stock to Create TDS Loss Sell 100 DAKT @ 22.2542 $2,218.35 $96.49    
12-Oct-06 TDS Created ($855.16) Net Cash Gain     $29.98 Annualized
35 Days         1.41% 14.73%
               
               
               
  Notice that the closed position ended with a small gain.  Last time the writer checked, we are not going  
  to go broke . . . Making money . . . .even if it wasn't very much! When annualized, it's actually 'not bad', but  
  annualizing a one more return requires repeating the process eleven more time to actually achieve that  
  return.  Again, the purpose is to create a loss  . . which you can see below.  
               
Section Three How the two positions are recorded in the Capital Gains Tracker      
               
     
Purchase Sell Symbol Opening Position Basis Proceeds 2006Gain  
6-Jul-06 12-Oct-06 DAKT Buy 100 DAKT @ 30 ($3,007.00) $2,218.35 ($788.65)  
Active 6-Jul-06 DAKT - QKCAF Sell Jan $30 call @ 4.50   $441.73    
7-Sep-06 Active DAKT Buy 100 DAKT @ 21.1486 ($2,121.86)      
12-Oct-06 7-Sep-06 DAKT - QKCJD Sell Oct $20 call @ 1.85 ($243.25) $176.74 ($66.51)  
               
               
        2006 Realized Gain ($855.16)  
               
    By using the higher priced cost basis for the stock, a 'realized' loss is created.    

Please feel free to ask questions . . . we both learn through the exchange.

The Covered Writer   rlcoveru@wavecable,com

Example Index

PLEASE NOTE THAT THIS EXAMPLE IS NOT TO BE CONSIDERED AS A RECOMMENDATION TO INVEST IN DAKT 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 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.

Thank you!

SYSTEMATIC COVERED WRITING
Copyright © 2005. All rights reserved.
Revised: 02/05/07