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Wednesday, November 7, 2007

Analysis Sheet

Below is a sample 'Analysis Sheet' used by the Covered Calls Advisor to evaluate each potential covered call position. The sheet shown below is for the Covered Calls Advisor Portfolio current position in McDonald's. It is presented using ZOHO Sheet to enable you, the reader, to view not only the numbers on the sheet, but also the formulas used in each cell if you choose to do so. Unfortunately, the ZOHO Sheet takes several seconds to load so some patience is required before you are able to navigate it.

The seven columns on the 'Analysis Sheet' are as follows:
1. Input Description
2. Input Value -- The financial data manually keyed into the sheet.
3. Category -- There are ten analysis categories used.
4. Financial Metrics -- A brief description of the financial measure being calculated.
5. Actuals -- The calculated value for the associated financial metric.
6. Ratings Methodology -- The point value assigned to each range of values for each financial metric.
7. Points -- The points achieved for that particular financial metric based on the 'Actuals'(#5 above) and where they fall within the 'Ratings Methodology'(#6 above) range.

In addition, a 'Summary of Results' is shown at the bottom center section of the sheet. The 'Actuals' column shows the points achieved for each category as well as the total for all ten categories. The final summary column labeled 'Achieve' shows a YES or NO which indicates whether the desired threshold was or was not achieved for each category. A grand total of 80 points or more is required to achieve the overall threshold for the covered call position being analyzed -- reaching this level is equivalent to a 'Buy' for establishing the position.





Preparing each 'Analysis Sheet' typically requires about 20 minutes of data collection and data entry. This advisor primarily uses Schwab.com data resources to capture the requisite information. A prior article (Covered Calls Selection Process link) described how the number of potential covered call investment candidates are narrowed down to a manageable number. Typically, about 30-40 covered call 'Analysis Sheet' positions are completed each month to identify 10-20 investments.

This level of detailed analysis for each potential position is more effort than many covered call investors feel is warranted for analyzing a particular position. These feelings are expected and they're fine, because each person should seek his/her own approach, criteria, and comfort level when making covered call investing choices.

This 'Analysis Sheet' is a work-in-progress. Rarely does a month go by without some tweak to the methodology, and continued future modifications will undoubtedly occur. I hope this article has provided you some useful ideas and that it might stimulate your thinking regarding your own covered calls selection methodology.

Regards and Godspeed

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