New Page 1

Let's begin by changing the first part of this comparison to Systematic Covered Writing verses the naked put sale or "Selling Puts". SysCW is not just buying stock and selling call options, but rather doing so following established guidelines with the understanding that the investor is interested in long-term investments in the stock market. There are many that will say that covered writing and selling puts are equivalent strategies . . . I've seen that statement . . . and I disagree!

There are those that believe everything they read . . . so they can just stop now and believe what they just read. For everyone else, the following information is offered with a personal challenge. That challenge is to check it out for yourself. Don't just believe the covered writer any more than the other point of view. I guarantee that if you do the math and leave the emotions out of the discussion, you will agree that Systematic Covered Writing and selling puts are not equivalent.

The first issue to agree on is not just what is a covered position, but rather what is a covered position using the SysCW methodology for that is what we are comparing. The rational behind the SysCW Initial positions is based on a number of points

In order to show that SysCW Initial Positions and Put Selling with the same expirations are not equivalent, the writer is going to select ten different stocks to use as real examples. There is nothing special about these stocks, other than they are stocks the writer has used in the past for Initial Positions. Which stock you choose will not matter. You can pick any stock you want and do the math, the conclusion will be the same. They are not equivalent . . . even though others will say they are.

Today is a snapshot in time. The current prices for the stocks and options are as of July 7, 2006, a day that happened to see the Dow lose over 100 points! Again . . . the principle is based on math . . . the math will work, no matter what day it is, as long as you follow the SysCW guidelines!

With it being July . . . the writer will select calls that expire in January 2007. Here is the data collected as of July 7, 2006:

SysCW Initial Positions verses Selling Puts
							Annualized
Stock	Price	Strike	Call	Premium	%	Return if called	%
RMBS	$23.80	$22.50	BNQAX	$5.50	22.83%	$387.75	30.10%
TELK	$15.72	$15.00	ZULAC	$5.10	32.06%	$405.75	47.61%
SNDK	$47.45	$47.50	SWFAI	$7.40	15.44%	$712.75	27.79%
ELN	$15.82	$15.00	ELNAC	$3.30	20.43%	$215.75	25.16%
MYOG	$28.00	$25.00	VBNAE	$6.50	22.98%	$317.75	20.97%
MRVL	$41.73	$40.00	UVMAH	$7.00	16.60%	$494.75	21.93%
AGIX	$12.98	$12.50	AUBAV	$3.40	25.70%	$259.75	36.88%
JCOM	$31.00	$30.00	VJSAF	$4.70	14.93%	$337.75	20.14%
KCI	$42.60	$40.00	ZMFAH	$9.80	22.85%	$687.75	29.86%
IIG	$13.28	$12.50	IIGAV	$3.00	22.09%	$189.75	26.33%

The annualized percentage takes the back to cash gain and divides that amount by the investment, and then annualized the period return. Always remember when you see an annualized return on ANY site, the assumption is being made that the transactions could be repeated. The shorter the duration, the less likely the possibility if this happening.

Ok, so there are ten possible Systematic Covered Writing Initial Positions. Now IF SELLING PUT positions were 'identical', the math should be the same . . . . right? I mean that only makes sense being as they are touted to be equal investments by some! Equal is equal . . . not 'real close', or almost the same in the covered writer's understanding of that mathematical principal. Okay . . . let's look at the same positions, only sell the put instead of buying the stock.

SysCW Initial Positions verses Selling Puts
							Annualized
Stock	Price	Strike	PUT	Premium	%	Return if expired	%
RMBS	$23.80	$22.50	BNQMX	$3.60	15.68%	$327.75	26.91%
TELK	$15.72	$15.00	ZULMC	$3.00	19.54%	$267.75	32.92%
SNDK	$47.45	$47.50	SWFMW	$6.20	12.91%	$587.75	22.89%
ENL	$15.82	$15.00	ELNMC	$2.10	12.81%	$177.75	21.85%
MYOG	$28.00	$25.00	VBNME	$2.90	10.09%	$257.75	19.05%
MRVL	$41.73	$40.00	UVMMH	$4.20	9.88%	$387.75	17.93%
AGIX	$12.98	$12.50	AUBMV	$2.70	20.27%	$237.75	35.04%
JCOM	$31.00	$30.00	VJSMF	$2.95	9.27%	$262.75	16.19%
KCI	$42.60	$40.00	ZMFMH	$6.30	14.62%	$597.75	27.64%
IIG	$13.28	$12.50	IIGMV	$2.10	15.27%	$177.75	26.20%

In this cash, the percent is based on the premium generated divided by the potential strike price stock investment. This is the risk . . . if the stock is put to the investor, he or she will have to buy 100 shares at the strike price. The same is true with the annualized return. The assumption is the option expires and the investors obligation is over. The annualized return is based on the 'if the stock was purchased' scenario, which is the only way to figure it.

Right here . . . there is going to be that savvy investor that is going to talk about the put position using 'margin' . . . to them I say, lets keep everything equal, for the covered writer could also purchase the stock on margin, cut the investment almost in half and double the return. Let's not go there, for they will not win that discussion, any more than they are going to win this one.

Rather than have you scroll back and forth . . .how about a table presenting the percentages side by side?

			Annualized
	CALL	PUT	CALL	PUT
Stock	%	%	%	%
RMBS	22.83%	15.68%	30.10%	26.91%
TELK	32.06%	19.54%	47.61%	32.92%
SNDK	15.44%	12.91%	27.79%	22.89%
ENL	20.43%	12.81%	25.16%	21.85%
MYOG	22.98%	10.09%	20.97%	19.05%
MRVL	16.60%	9.88%	21.93%	17.93%
AGIX	25.70%	20.27%	36.88%	35.04%
JCOM	14.93%	9.27%	20.14%	16.19%
KCI	22.85%	14.62%	29.86%	27.64%
IIG	22.09%	15.27%	26.33%	26.20%

Where is the equity? As far as the downside protection is concerned . . . the SysCW Initial Position provides more premium than selling the put EVERY TIME! This is not some magic mumble jumble 'baffle them' with an elaborate play on words ... it's the math. It does not matter what the stock is, the premium will be greater for a six month call than it will be for a six month put EVERY time. In most cases, the SysCW investor needs to go at least six months in order to generate the necessary 15% minimum downside protection.

The data will change as the price of the stock changes . . . but the relationship will remain the same.

We could create examples until the cows come home . . . either they are equal or they are not . . . don't take the covered writer's word for it . . . do the math.

Now take a look at the end of the position. In both cases, the position is going back to cash. Once again, the annualize return is greater for the covered call position than it is for the naked put position. Period.

The disparity narrows for shorter term positions, but short-term covered call positions do not fit the established guidelines for Systematic Covered Writing Initial Positions. Why is that important? Because if one try's to get around the fact that naked puts and covered positions are not equal by shortening the term, the risk of investment is increased dramatically!

The put seller still uses the same strike price, but accepts a reduced premium . . . they try to justify that by saying they are going to repeat the process twelve times in a row, and to that the covered writers asks: "Just exactly which stock market are you doing your investing?" Once again . . . if the risk is not the same . . . the positions are not the same!

Using RMBS as an example, the covered position mentioned above provides $5.50 per share downside protection the moment the transactions are executed. Keeping the strike price the same, which is trying to maintain as much of an 'apples to apples' comparison as possible, the Aug $22.50 put could be sold for $1.65 a share as of July 7, 2006. It's the same stock . . . same entry date, but LOOK at the difference in the risk.

With the covered position, the writer has $5.50 of the $23.80 investment back immediately. For the naked put holding, he or she has $1.65 in their hands, with the commitment to buy RMBS at $22.50. Now . . . let's just say in August that RMBS is trading at $15.00 a share. Which investor is in a 'better' position? What is the point? Just confirming that the risk of a short term put position is much greater than the risk of a SysCW covered call position, which brings us full circle again. The two strategies are not mathematically anywhere close to being equal.

CONCLUSION: If selling puts is not equal to a SysCW covered call position . . . then it is not equal . . . there is no middle ground to this. The math is the math.

In addition . . . the SysCW process provides significant tax advantages over the put selling strategy. For what it's worth, please note that the covered writer does occasionally sell naked puts. WHAT? Yes . . . and the writer does so knowing full well that the risk is increased. The cool thing is the strategies for SysCW can be used to protect naked put positions. Along with a greater risk comes the potential for a greater short term gain if the trade works, which is why investors use the strategy.

The covered writer point to all of this is for the investor to take the time to understand the real differences between strategies and to evaluate the source of information as to how well both sides are being addressed. A firm that is somehow connected with either proceeds from transactions or a subscription benefit from the increased annual return 'hype' is going to tout the supposed equality of the two strategies. In one case, it would be because of the potential increase in transaction fees over the same time period, and in the other it would be the play on one's emotions.

You can always tell the second 'intention', if right after the reported annualized gain for a 6-week position the disclaimer that the same transactions would have to be executed 6 times in a row to actually achieve this annualized gain is missing. You may find that comment in very small print somewhere else in the information . . . hardly ever immediately after the return is calculated. This observation is easily verified . . . . think about it . . . . maybe they really don't want YOU to think about it!

The objection is not about the strategy . . . the objection is in convincing the public that somehow they are equal.