Potential Trade Cash Generation and Return

2.00%

Current Stock Price #1 $28.08 Current Option Bid #6 $3.40

Number of Shares #2 100 Strike Price #7 $27.50

Trade Entry Code #3 1.25 Expiration Code #8 3.75

Cash Generated #4 $298.63 Stock Investment #9 $2,849.35

Return if Called #5 $204.28 APR if Called #10 34.41%

Cash Required for Trade $2,550.72 #11

Percentage Recovered w/Option * 10.48% (Cash Generation if not Called.)

#12 #13
Assuming trade could be repeated 50.31% is your annualize cash generation.

* The net cash generated divided by the net cash invested. This is your 'downside protection'.
This is not a profit percentage. You could call it the 'Stock Ownership Risk Reduction Percentage'.

BUY THE NUMBERS

Investment position selection has many components. Allocation to various market sectors, the company's outlook and
or potential for generating a profit are considered. When all is said and done it should also be noted that nobody knows.
Because of this last concept .. I rely a great deal on the 'math exercise' presented above. Face it. Either the stock is
going to get called or it's not. Does the math work for either possibility? That is the question. So, what are the numbers?

#1 This is the price you paid per share for your stock. It does not include commissions and or fees.
#2 The number of shares that were purchased is indicated. Generally, this will be a multiple of one hundred.
#3 A digital representation of the purchase month. The whole number is the months 1=January, 2=February and the
decimal represents a portion of a month (approximately).
#4 This is the actual amount of cash that was added to your account from the sale of the call option. It is a net number as
it includes all commissions and fees charged. This number can and should be verified by the confirmation.
#5 The number is an extrapolation of the net cash generated if the current call option is exercised. We know what the
strike price is, we know what the commissions will be, we can predetermine this value to within a few pennies of the actual
number. It's math … not rocket science!
#6 This is the amount per share received from the sale of the call option. Once we purchase the stock, we begin our
transaction sequence with the 'sale' of the covered call option. This sale generates cash now, which we can spend. The
actual results of the trade won't be know until the next event happens. With in reason, this number is known prior to the
purchase of the stock. In fact … it is the root of the math exercise.
#7 The strike price is the price we are agreeing to sell our stock for in exchange for the premium receive from the call.
#8 A digital representation of the expiration month. This figure along with the value of #3 are used to determine the length
or period of the trade, which is needed to compute the annualized return.
#9 The net amount invested in the purchase of the stock position. This figure also includes all commissions and fees and
can be verified with the trade confirmation and/or the monthly statement prepared by the brokerage firm.
#10 This percentage represents the annualized rate of return this trade will produce if the stock is called at expiration. We
can compute it ahead of time because we know the net investment amount, the net cash that will be gained and the period
of the trade. To annualize the return we simply assume that a similar trade could be repeated over the course of a year!
#11 If need be we can use the funds received from the sale of the call option to help purchase the stock. This figure is
the minimum amount of cash we would need to enter the trade in the first place.
#12 How much of the initial investment did we receive back on a percentage basis? That's what this is. It's the amount
of net cash generated divided by the net amount invested.
#13 Let's say the stock is not called and the option expires. Let's further say that we could repeat the trade over and over
to cover twelve months. This percentage is simply an annualized look at the cash generation rate. Does it work for you?
That does not mean that it will be done, but rather if it can be done … will you be satisfied? That is the math exercise.
The tab labeled The Math contains the basic SysCW Initial Position Math Exercise. The first
thing you will want to do is go to line 45 and enter your commission and fee schedule. You will
only need to do this once. The save the layout.

There are nine yellow cells to enter data. There is also a text area off to the right for you to enter
any specific notes about a given position beginning in column M row 6. Do not type anywhere
else on this work sheet!

Suggestion: I would copy the original worksheet and the insert a new worksheet in this workbook.
I would then label the tab with the ticker symbol of the stock follow by a number. This way if you
enter another position using the same stock you can tell the difference. (e.g. CYBX1 . . . CYBX2
and etc.)

Each time you enter a new position, you create a new page. In other words, save 'The Math' as a
template and always begin by inserting a new page and the copy the format of The Math onto that
new worksheet.

If any of this is unclear, please feel free to email me at rlcoveru@wavecable.com

 The first
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# of Contracts x 100 100 Short Call Strike $30.00
Trade Entry Date 1-Feb-08 Expiration M & Y 7 2008
Net Cash Generated $55.00 Net Option Investment $841.00
Net Return if Called ($286.00) Annualized At Strike -73.88% (A)

Cash Required for Trade $786.00

Percentage Recovered w/Option * 6.54% (B)

Days Until Expiration & Expire Date 168 18-Jul-08

* The net cash generated divided by the net cash invested. This is the 'downside protection'.
This is not a profit percentage. It could be called the 'Stock Ownership Risk Reduction Percentage'.

(1) The Annualized percentage rate is calculated by dividing the 'Return if Called', by the duration of the
position in days, and then multiply the result by 365.
It is important to realized that an assumption is being made that the same (or similar) transactions could be
executed over the course of a year. There is no guarantee that this could be accomplished. Also note that
the shorter the duration of the position, the more significant this caution becomes.

Comment: The guidelines for establishing an Initial Position using Systematic Covered Writing, requires a minimum
potential back to cash return percentage (A), if the option is exercised, coupled with a minimum percentage (B)
of the original investment generated by selling the call option. It is up to the writer to decide what these percentages
should be. The SysCW recommendation is for both of them to be at least 15%. Remember this is a guideline
not a hard fast rule. For diversification purposes, there may be times when it is necessary to hedge a little. I would
always write a note to explain why you entered a posiiton if the basic guidelines were not followed.