• Intro
• Single tab
• Multiple tab
• “What now” tab

The Elite version contains these four tabs plus two more:

• “Unwind now” tab
• Schedule D

The first of these new additions has been available to premium members for the past few months and has been explained in the following journal article:

http://www.thebluecollarinvestor.com/blog/closing-covered-call-positions-mid-contract-the-elite-calculator/

The purpose of this article is to explain the benefits of the Schedule D particularly for those trading outside of sheltered accounts. As you will see, a lot of time and effort has gone into the expanded version of the calculator.

Schedule D

In non-sheltered accounts, if you sold a stock or option, regardless of whether you made or lost money on it, you have to file Schedule D. This two-page form, with all its sections, columns and special computations, looks complicated and it certainly can be.

Your extra work will be greatly reduced by the Schedule D tab of the Elite Calculator. You will also be rewarded by tax savings. If you lost money, this form will help you use those losses to offset any gains or a portion of your ordinary income. And if you profited from your transactions, it will help ensure you don’t overpay the government for your gains.

When you make money on a sale, Schedule D requires you to report the transaction using some basic information, including when you bought the asset and when you sold it. This is critical, because how long you hold the property determines its tax rate.

If you owned the security for a year or less, any gain will cost you more in taxes. These short-term assets are taxed at the same rate as your regular income, which could be as high as 35 percent on your return. Short-term sales are reported in Part 1 of the form.

However, if you held the security for 366 days or more, it’s a long-term asset and is eligible for a lower capital gains rate — 15 percent or even zero percent, depending upon your income level. Sales of these assets are reported in Part 2 of the form.

Information required: 

• Name of asset
• Date purchased
• Date sold
• Price sold
• Cost basis
• Gain/loss 

The gain or loss that you enter is figured by subtracting your basis from the sales price.   

Information tab

Figure 1 below shows the Schedule D information tab accessed by clicking on the icon highlighted by the red arrow:

Intro page

                                                                             Figure 1- Information tab

I have highlighted the following areas:

• Yellow-personal information to enter
• Green- user information
• Pink- six entry codes or different pages of the Schedule D specific for the type of  trade

Covered call writers will use predominantly entry tabs D2, D3 and D4. 

Entry tab D2 

We use this entry code when we buy a stock, sell the call and our shares are assigned. In all entry tabs, information is entered in blue areas only as shown in figure 2:

Entry tab D2- enter info

                                                                                                 Figure 2 

In this example, we bought AAPL for $200 and sold the $200 call for $650. The calculations will appear in the right side of the tab in the “white areas” Figure 3:

Entry code D2- results

                                                                                                Figure 3

The red-circled area shows a short-term profit of $650.

 Entry tab D3 

We use this code when we buy a stock, sell the option and then buy back the option. Once again, the information is entered in the blue areas as shown in figure 4:

Entry tab D4- enter info

                                                                                                     Figure 4 

The calculations will appear in the white areas on the right side of the tab as displayed in figure 5:

Entry tab D4- results

                                                                                                       Figure 5

 Since the option was sold for $650 and repurchased for $124, the spreadsheet shows a short-term capital gain of $526 (red circle).

 Entry tab D4 

We use this entry tab when we buy a stock, sell the call and the option expires worthless. The blue cells are filled in as shown in figure 6:

Entry tab D4- enter info

                                                                                                      Figure 6

Note that the option on line 1 was sold in 2009 while the option on the second line was sold in 2007. Next we view the calculations on the right side of the tab in the white areas (figure 7):

Entry tab 4 results

                                                                                                     Figure 7 

The green area shows a short-term capital gain of $650 and the yellow area shows a long-term capital gain of $1100. The totals capital gain of $1750 (red circle) is broken down into short and long-term at the bottom of the page.

 The other entry codes are for stocks or options only and not the combination of the two as we utilize for covered call writing. At the time of the penning of this book consideration was being given to expanding the Schedule D to include puts. 

How to purchase the Elite Calculator:

The Elite Calculator is offered for FREE to premium members and available in the resource download section. Also available in this area is the 23-page user guide. General members can obtain the enhanced version of the calculator in the Blue Collar Store:

http://www.thebluecollarinvestor.com/store.shtml

The calculator and user guide will be emailed directly to your computer.

The information gleaned from the Schedule D of the Elite Calculator should be used in consultation with your tax advisor. 

Owen Sargent (oustanding CPA who helped develop the calculator) can be contacted @ (osargentcpa@aol.com) to answer any questions relating to the calculator or tax consequences from options trading.

Market tone (as of June 8th):

A 3-month chart of the S&P 500 and the VIX shows a bullish reversal of the S&P 500 (red arrows) and another bullish reversal of the VIX (green arrows). Although encouraging, the inherent volatility associated with these dramatic whipsaws is of concern to conservative investors like us. Here is the chart:

S&P 500 vs. the VIX as of 7-8-10

Summary:

IBD- Market in a confirmed uptrend

BCI- Cautiously bullish and leaning towards favoring I-T-M strikes for the upcoming contract cycle.

Thanks from the Ellman family:

Your kind emails regarding my son’s marriage meant a lot to us.

My best to all,

Alan (alan@thebluecollarinvestor.com)

Hello to all Blue Collar Investors. On May 15, Jim Cramer welcomed Bucyrus International CEO Tim Sullivan to the show. Cramer has been bullish on (BUCY) for all you home gamers, for a while now. And he’s been right: The stock is up over 28% to $29.14 since his call on Dec. 9, 2008, and up over 84% since he reiterated the call on March 4 of this year! Cramer thinks this up-trend will continue. 

First, before we get into what the CEO thinks, let’s see if this Cramer stock pick is good for our Blue Collar System:  

Fundamentals: 

IBD SmartSelect Scan is all Green, and a go! 

Scouter rating of 8 

The E/R is due 7/23, all clear so far. 

Technical’s / Chart:

_______________ 

BUCY as of 6-05-09

Definition:

An exchange-traded fund is a security that tracks an index, a commodity, or a basket of assets like an index fund, but trades like a stock on an exchange, thus experiencing price changes throughout the day as it is bought and sold. These securities provide the diversification of an index fund.

A critical requirement of my system is to be properly diversified both by industry and by cash allocation. No one industry should represent more than 20% of your portfolio holdings. Owning five different stocks in five different industries would require you to own at least 500 shares since each options contract represents 100 shares. This may require a cash allotment of $25,00 to $50,000 or more. By writing calls on ETFs, each share represents a basket of stocks and therefore, instant diversification.

There is also a benefit of a lesser time requirement. With individual equities, we are constantly changing our portfolio mix and factoring in earnings reports, technical and fundamental analysis. With ETFs, we are basically tracking just one security. Now if you are asking yourself why use stocks at all, the answer lies in the greater returns you will garner by writing calls on individual equities. In normal market conditions, a return of 2-4% is achievable compared to the 1-2% for selling options on ETFs.

Who should use ETFs?:

Investors with limited income, with low risk tolerance or with time retrictions should consider writing calls on ETFs.

Advantages of ETFs:

1- Broad diversification- by definition an ETF inherintly provides diversification across an entire index.

2- Lower costs- Most ETFs are not actively managed therefore decreasing marketing, distribution and accounting expenses and most do not have 12b-1 (advertising) fees.

3- Tax efficiency- ETFs have low capital gains because of the low turnover in their portfolios.

4- No need for a financial advisor- Why pay 11/2-2% a year to do something you could manage yourself?

5- Buying and selling flexibility- These securities maintain all the features of a stock, such as limit orders, short selling, stop orders and options.

Types of ETFs- Most ETFs are index funds and those are the ones I will focus on. For informational purposes, there are also leveraged (short), commodity, currency, actively managed ETFs and more. Here are three of the more popular ETFs for writing calls on heavily traded indexes:

1- QQQQ- follows a basket of 100 of the largest non-financial equities on the Nasdaq exchange.

2- VTI- Vanguards security that tracks the total stock market.

3- VV- Vanguards security that tracks the large cap universe.

Major issuers of ETFs:

1- Barclays Global Investors issues iShares.

2- State Street Global Advisors issues street Tracks and SPDRs

3- Vanguard issues Vanguard ETFs, formerly known as VIPERs.

4- Merrill Lynch issues HOLDRs.

5- PowerShares issuers ETFs and BLDRS (based on American Depository Recepts).

Did you know that there are ETFs based on Covered Call Writing?: 

There are several relatively new ETFs that use cc writing in at least 50% of its portfolio. Here are a few:

LCM, BEO, DPD, FFA, MCN, and BEP. These funds haven’t proven themselves over time plus we aren’t sure what’s going on in the other portion of the portfolio. My gut tells me that if I was going with an investment vehicle that was actively managed, I’d prefer to manage it myself, thank you.

The CBOE S&P 500 BuyWrite Index (BXM):

This is a benchmark index designed to track the hypothetical performance of a covered call strategy on the S&P 500 Index.

It is based on buying the index and selling a 1-month O-T-M call, similiar to the Blue Collar System although we consider all strikes. A study done by Ibbotson Associates in 2004 came to the conclusion that a 16-year history showed the BXM to have a 12.30% return compared to the S&P 500 with a 12.20% return but with two-thirds the volatility of the S&P 500. This means that by using the BXM an investor can get similiar returns to the S&P index but with less aggravation. I created the chart below to show the comparison of the BXM Index (black line) compared to the S&P 500 (blue line) over the past year:

BXM vs. the S&P 500- 1 year chart

VIX as of 4-3-09

Banking Industry 4-3-09

S&P 500 4-3-09

_____________________________________________________________________________________________

Last weeks economic news:

The one big negative this past week was the increase in the unemployment rate to 8.5%, the highest in 26 years. Several positives included an increase in consumer confidence, construction spending beat expectations, factory orders rose for the first time in six months, and the manufacturing indusrty continued its modest recovery. For the week, the S&P 500 was up 3.3% for a year-to-date return of -6.0%.

_____________________________________________________________________________________

Replay of radio interview:

For those who missed it, WNB Radio Network is replaying an interview I did several weeks ago. It will play all weekend:

• WnbRadioNetwork.com
• Click on the “MInd Your Bizness Program”.

Let’s hope for more good news this week,

Alan (alan@thebluecollarinvestor.com)

On the General Economy:

• The economy has fallen off a cliff; we are in an economic Pearl Harbor.
• The economy has slowed as people’s buying and saving behavior has changed.
• High end has been hit the most; that’s why Walmart is doing well.
• We need American exports to grow.
• “Our best days are ahead but how fast we get there is a question”.

The Cause of the Crisis:

• Everyone thought that home prices would only go up.
• This led to poor lending and 11 trillion dollars of mortgage debt built on this wrong theory.
• We now have 1 1/2 million too many houses. Population growth will absorb this in time.
• Vacancy rate is up a few percentage points.
• Lack or decrease in new construction is a positive.
• People’s networth was reduced and this led to fear and a “vicious negative feedback cycle”.
• Rating Agencies refused to rate exotic Wall Street products (approprietly) that they didn’t understand.
• They, too, felt that housing prices would only go up.
• The economy temporarily benefited from “leveraging up”  but too many homes were built.
• Many buyers could not afford these homes and that percentage must go down.
• Corporate America and their CEOs behaved terribly in terms of their attitudes towards the sanctity of the numbers they reported (I think he meant hanky-panky bookkeeping). 

Government Action:

• In September of 2008, the Fed insured money market accounts and commercial paper, thereby saving the US from financial system collapse.
• Fed policy will determine the degree of inflation, what we do with money supply will dictate how bad the effect will be.
• The whole world is leveraging down except the US. We can print money as long as people do business in US dollars.
• The gov’t has done many positives with the banking system except to restore total confidence.
• The gov’t must realize that it is facing an “economic Pearl Harbor” , treat Obama as Commander in Chief and then back him with universal support.
• We need a clear message from our gov’t. This has not as yet happened.
• Obama must articulate that no one should be worried about  having any money in a US bank.
• We need a mortage plan to get payments down to a reasonable amount based on income.
• The gov’t is needed to oversee the recovery.
• Obama is the right President in the right country to repair this problem.
• Obama should not push a big agenda at this time; just concentrate on the economy.
• The stimulous plan is a part of the recovery; restoring confidence is the most important part of the process.
• The SEC should not suspend mark-to-market accounting (this is where we assign a value to a position held in a financial instrument based on the current fair market price for the instrument or similar instruments).
• Re-instatement of the uptick rule is a good idea (this will restrict the activity of those selling short or hoping for stocks to go down in price).
• We should lower taxes for the needy and raise taxes for those more fortunate.
• No problem if we reduce the deductions for charitable donations. These donations are contingent  more on a healthy economy rather than on tax credits.
• The Fed and Bernanke are doing a good job.

The Banking System:

• Banks will earn their way out of this despite fallen stock prices.
• Money is cheap (1.44% for Wells Fargo last year) and deposits are coming in.
• Spreads have never been wider (difference between what banks borrow for and charge the consumer).
• ALL bank deposits MUST be protected.
• Banks must build capital by paying lower dividends and utilizing the large spreads.
• The gov’t must articulate that money is safe in US banks.
• Citigroup shareholders may not see a recovery, but all deposits are safe.
• Bank toxic assets that have been marked-to-market may have good value now.
• Banks that need to go broke, should be allowed to go broke with no consumer out even one penny; shareholders, however, can lose their investments.
• There are 7400 banks, most are okay.

The Auto Industry:

• The  auto industry had been producing 15 million vehiles per year. Lately, that figure has diminished to 9 million/year. This business model does not exist anymore.
• We must re-adapt the model to 13 million/year. Then it would be okay to bail GM out. This is a better approach than bankrupcy.
• If GM goes bankrupt, it will effect the entire economy. 
• There is too much legacy (benefits) costs.
• We need a combination of a new business model and recovery.

The Stock Market:

• Business works, over a ten year period you will do better with a basket of stocks than with treasuries.
• Forget stock quotes and just look at the business.
• A cross section of well-capitalized companies will make you money over the long term.
• Some of Warren’s largest holdings include American Express, Coca Cola, Conoco Phillips and Kraft Food.
• Derrivatives (options, packaged mortgage securities etc.) can be dangerous, but not if regulated properly. 

History and Lessons Learned:

• In the 19th centruy there were 6 financial panics due to loss of confidence in banks. In the 20th century the Fed was put in place to calm fears but then the 30s came along and panic set in again. As a result, the FDIC was put in place and no depositor of an insured bank has lost even a penny since 1934.
• Everyone must be totally confident in the safety of our banks.
• The Great Depression reflected weakening confidence in the banking system. That should not exist today because of the FDIC and the fact that our system is better prepared to deal with these issues. The President must articulate this to the public.
• In 1900 the Dow was @ 66; today its at 7000. That’s a return of 100 for 1. Fifteen of those years look terrible. The system works extremely well but at times the government needs to play a role.
• This crisis has demonstrated the dangers of extreme leverage. In the future we should not allow the big institutions to go unchecked as far as the use of leverage.
• Avoid credit card debt and only buy a home when you can afford it.

The Reality of our Situation:

• The recovery will take time but will occur.
• 600,000 more people are unemployed and this effects everyone.
• Fear of losing one’s job leads to less spending.
• Unemployment will go higher and then stabilize.
• The job market recovery will lag the economy.
• The speed of the recovery depends on the wisdom of the gov’t policies.
• The steps we need to take are inflationary. The more money out there (printed) compared to economic activity, the less it is worth.
• The banking system in 2009 will not be a problem; fear that it may be, is the problem. People are fleeing to gov’t-guaranteed vehicles.
• Good business is the best asset against inflation. Own your own or via equity ownership.
• This crisis has changed the spending and investment habits of many. However, if folks put their money in gov’t securities, it will diminish their spending power.

Our Future:

• The American Economy works and will continue to work. We just did some really dumb things relating to leveraging up.
• Stocks will go up over time, businesses will be worth more, and people will have more buying power.
• Everything will be okay. We have the greatest economic machine man has ever created. The system works.

Jim Cramer versus Jon Stewart:

In case you missed it, there was a brouhaha this past week between Jon Stewart of Comedy Central and Jim Cramer of CNBC. Stewart attacked the financial network for irresponsible reporting and for berating average folks for poor investment decisions. Jim Cramer took exception to Stewart’s remarks and started a full-blown media blitz to respond to Stewart’s accusations. Now Stewart is a comedian, but partners those skills with an intellectual capacity for debate that takes a back seat to nobody. In the end, Cramer appeared on Stewart’s program, the Daily Show , for the ultimate battle. Cramer entered as the financial pro, the Harvard genius; Stewart as the brilliant comedy show host with a propensity for bathroom humor. It looked like a mismatch. But once the first shot was fired by Stewart it became apparent that his artillery consisted of indispuatable facts, clips and quotes of immeasurable proportions. Cramer had a box of Kleenex that he used generously.

They lied to me, I should have known, I’ll do better, I’ll change, cowered Cramer…it became more and more uncomfortable to watch. For me, the most disheartening part of the program was when Cramer was shown in a video clip of himself discussing how he can manipulate the market through rumor and innuendo. “I would never say this on television”, he stated in the clip. But he just did! His box of Kleenex appeared empty.

At the end of the show, they shook hands and there was a sadness I felt. Cramer was born a genius. He used his impressive skills to make millions and millions for millionnaires. Now he was supposed to represent the average Joe. The interview demonstrated that part of Jim Cramer still lives in the backrooms of the hedge fund world.

I still believe that there is a part of Cramer  who is for the average investor, just not all of him. His TV Program, Mad Money, can still be a valuable tool in our Blue Collar armanetarium. There are many educational points that can be garnered from his show and behind-the-scene gems that may not appear in other venues. I do believe that Jim Cramer cares about us but he is, in fact, a product of his world, which is far outside of ours.

To me, Cramer is my employee who works for free. He brings me ideas and suggestions then I decide what to do with them. I will keep him on my payroll at his current salary. Tony C. will continue to monitor his program and we will publish journal articles, from time to time, about how his ideas may fit into our Blue Collar System. 

Never before has it been more apparent how important it is for the modern day investor to take control of his or her own financial destiny. It wasn’t that long ago that we were trying to understand what happened with AIG, CitiGroup, Lehman, Merrill, Bernie Madoff and all the little Madoff clones. Before these guys, how about Enron, Tyco and Worldcom? The list is endless and hopefully regulation will become a meaningful word once again. If it does, that will benefit all the Blue Collar Investors of the world and even many Wall Street insiders who are unfairly getting a bad name by association.

So I say, tune in Cramer’s Mad Money. He offers us education and he doesn’t charge for it. But when he says “buy-buy-buy” or “sell-sell-sell”, it’s time to tune out-out-out! There’s only one person who makes that decision for my portfolio and that’s me. There should be only one person making that decision for your portfolio and, of course, that’s you.

For those who haven’t seen the program, here is a link:

http://www.thedailyshow.com/full-episodes/index.jhtml?episodeId=220533

Last Weeks Economic News:

Hey, some good news! February retail sales wre better than expected and January sales were revised higher. The US trade deficit narrowed for the sixth straight month to the lowest level in six years. For the week, the S&P 500 was up 10.7% for a year-to-date return of – 15.6%

Hoping I didn’t sound too angry ,

Alan   (YOUR COMMENTS ARE WELCOME, JUST CLICK ON THE “COMMENTS” LINK)

alan@thebluecollarinvestor.com

Before I address this matter, let’s review the pros and cons of each type of strike price:

Out-Of-The-Money:

This gives us upside potential in addition to the option return but no downside protection. If we buy a stock @ $28 and sell the $30 call, we have the possibility to earn an additional $2 per share if the equity appreciates from $28 to $30 or beyond. If the stock goes down in value during the 1-month contract period, the profit will be decreased or lost (unless we invoke an exit strategy).

At-The-Money Strike:

This type of strike will normally give us the highest option return but offers no upside potential or downside protection. If we purchase a stock @ $30 and sell the $30 call, our option return will be impressive but we will not participate in any share appreciation nor will we have have any insurance if the stock declines in value.

In-The-Money Strike:

Here we receive option profit plus downside protection but no upside potential. If we buy a stock @ $32 and sell the $30 call, we receive an option profit plus protection down to $30. In other words, if our shares depreciate in value from $32 to $30, our option profit is protected. Let’s examine this in more detail.

Option Value as it relates to Strike price:

In my book, Cashing in on Covered Calls, this matter is discussed on pages 25 to 27. An option premium is broken down into two components:

1- Intrinsic Value- The value of an option if it were to expire immediately with the underlying stock at its current price; the amount by which the stock is in-the-money. For these call options, it is the positive difference between the stock price and the strike price. In the above example, it would be $2 (32 – 30). Only in-the-money strikes create intrinsic value.

2- Time Value- The portion of the option premium that is attributable to the amount of time remaing until expiration Friday. Time value = Option premium – Intrinsic value. All strikes have time value but at-the-money and out-of-the-money strikes have ONLY time value.

What makes the I-T-M strike so special ?

This is the only strike that offers intrinsic value as a component of its option premium. In the above example, if we sell a $30 call on a stock trading @ $32, we receive $2 of intrinsic value to start and then time value on top of that. The time value is our actual profit because if our shares are assigned and sold @ $30 (a strong likelihood), we lose $2 per share on the sale of the stock. Therefore, we do not include the intrinsic value in our profit. However, this money is protecting us from $32 to $30. For my computations, I use this $2 to “buy down” the purchase price of my stock. Instead of saying that I bought a $32 stock and received an option premium of $3.50, I enter it as if I purchased a stock for $30 and received an option premium of $1.50. If we receive an option premium of $3.50 per share when selling the $30 call, there is $2 in intrinsic value and $1.50 in time value. The profit is time value divided by the “bought down” purchase price. It would look like this:

ROO = 150/3000 = 5% 1-month return or 60% annualized.

Downside protection = 200/3200 = 6.3%

Therefore, we are guaranteed a 5% 1-month return as long as our shares do not depreciate by more than 6.3% in that month.

The principles behind selling the in-the-money strike:

Successful covered call writing is not about selecting the only obvious choice using some magical formula that can be employed in every situation. There are many facors to incorporate into our investment decisions and no two scenarios are precisely the same. We can, however, use the Blue Collar mission statement of incorporating sound fundamental and technical principles along with our common sense to come to intelligent and informed  conclusions. Think of yourself as the artist who incorporates his well-thought-out strokes into an eventual masterpiece. How many Picassos are created with a paint-by-the-numbers kit?

I view an I-T-M strike as an option with an insurance policy. Now this policy is free but it does eliminate an opportunity. It’s free because the option buyer is paying for it when we sell the call. The opportunity lost is any potential for share appreciation. So when would the odds favor us to opt for the I-T-M strike versus the O-T-M strike? Here are the situations when I am most likely to sell an I-T-M strike:

1- An extremely volatile or declining market (hello!).

2- Technical analysis of the stock demonstrates mixed indicators.

3- An uptrending chart pattern but in a volatile manner  (the Scouter Rating will eliminate many of these).

4- Part of my laddering of strikes procedure: even in normal markets I will incorporate some I-T-M strikes as a way to diversifiy strikes.

Real life example- PZZA:

Papa John’s International, Inc. (NASDAQ:PZZA) is a stock on my watchlist with no upcoming earnings report. The technical indicators recently turned positive after a positive earnings report (see recent volume spike on the chart below). Here is the current chart:

PZZA as of 3-6-09

The current market value is $21.95 between the I-T-M $20 strike and the O-T-M $22.50 strike. The stock technicals are positive but the market tone is __________(you can fill in the blank!). Those with low risk-tolerance (I’m guilty as charged) may opt for the $20 call. Let’s work out the calulations. Since there are only two weeks remaining until the March options expire, let’s look at the April calls:

Out-of-the-money strike:

- Buy 100 x PZZA @ $21.95

- Sell 1 x $$22.50 call @ $1.25

- ROO = 5% 6-week return (125/2195) or 49% annualized

- Upside potential is 2.5% (55/2195)

- There is no downside protection

In-the-money strike:

- Buy 100 x PZZA @ $21.95

- Sell 1 x $20 call @ $2.60

- ROO = 3.3% 6-week return (260 – 195/2000) or 28% annualized

- Downside protection = 8.9% (195/2195). This is our insurance policy.

As an informed Blue Collar Investor we must decide between the two choices. The more bullish approach would be to sell the O-T-M strike and receive a neat 5.7% 6-week return, with the possibility of another 2.5% if the stock appreciates beyond the $22.50 strike price.

The safer, more conservative investment would be the I-T-M strike wherein we generate a lower 3.3% 6-week return but have a huge 8.9% downside protection insurance policy. In other words, our 3.3% return is protected as long as our stock does not depreciate in value by more than 8.9% in the next 6 weeks.

Many of our readers have asked why I have been highlighting mainly I-T-M strikes of late. The reason has to do with the extreme market volatility and the fact that I am a conservative investor with low risk tolerance. More aggressive investors might opt for the O-T-M strike. There is no right or wrong as long as you are making an informed decision factoring in and understanding all available information. Remember that all these calculations are done for you automatically using the ESOC (Ellman System Options Calculator).

Market Tone:

With the market in steady decline over the past several weeks, there is no surprise that the charts in most sectors are trending down. The S&P 500 is no exception. However, the chart of the CBOE Volatility Index is showing a trading range pattern which to many technicians is indicative of a possible bottoming of the market. Here are the charts:

S&P 500 as of 3-6-09

Volatility Index as of 3-6-09

Last Weeks Economic News:

The Federal Reserve’s Beige Book survey reported “weaker conditions in economic activity ” from January to late February in 10 of its 12 districts although Philadelphia and Chicago reported no change in “weak” economic conditions. The unemployment rate rose to 8.1% the highest since December 1983.

There is some good news. The Institute of Supply Management (ISM) reported stronger than expected manufacturing activity for February. This suggests that economic contraction may be stabilizing. Also, the service sector which represents the bulk of our economy appears to be stabilizing also indicating an economic upturn.

For the week, the S&P 500 was down 7% for a year-to-date return of – 23.9%.

Alan’s radio interview:

Last week, I was interviewed by Danielle Hampson of WNB Radio Network on her Mind Your BIZness Show. To listen to that program use the following link and then click on Cashing in on Covered Calls:

http://www.wnbnetworkwest.com/WnbMybShow.html 

My best to all,

Alan (alan@thebluecollarinvestor.com)