This Altorfer Covered Call System™ User’s Manual is owned and copyrighted by Arizona Financial Software, LLC. Any reproduction, resale, or distribution of this manual without the express written consent of Arizona Financial Software, LLC is prohibited and in violation of United States copyright law. Arizona Financial Software, LLC reserves all rights worldwide.

The software program, Altorfer Covered Call System™ for Windows, is owned and copyrighted by Arizona Financial Software, LLC.. Any reproduction, resale, or distribution of this product is prohibited and in violation of United States copyright law. Arizona Financial Software, LLC reserves all rights worldwide.

This product is licensed to you on an "as is" basis and is without warranty of any kind, either expressed or implied. Furthermore, Arizona Financial Software, LLC shall not be liable for any damages, either directly or indirectly arising out of the use of this product. This includes loss of business, anticipatory profits, or consequential damages resulting from the use of or misuse of your computer and this software.

The Altorfer Covered Call System™ User’s Manual may contain inaccuracies and errors. Arizona Financial Software, LLC assumes no liability for any errors or omissions therein. It should not be assumed that the methods, techniques, or indicators presented in this manual or in the software will be profitable or that they will not result in losses. Trading involves the risk of loss as well as possibility of profit. Past performance is not a guarantee of future results. All investments and trades carry risk, and all trading decisions of an individual remain the responsibility of that individual.

Copyright Ó 1997-2000 by Arizona Financial Software, LLC, All rights reserved. All of Arizona Financial Software, LLC products are trademarks or registered trademarks of Arizona Financial Software, LLC. Other brand and product names are trademarks or registered trademarks of their respective holders. Windows®, as used in this manual, refers to Microsoft’s implementation of a graphical user interface.

You are about to experience the Joy of Making Money by installing the easy to use Altorfer System for Covered Call Writing software.

Writing covered calls means selling a person the right to buy your stock at a certain price within a certain time period. When you sell (or write) an option on stock you already own (a "covered" call option), the money you receive is additional cash you would not have had if you just bought the stock and did not sell an option.

The judicious use of options is the easiest, safest, and most profitable way to obtain the highest return on your capital. This fact was best stated by Value Line, the esteemed investment service, when they wrote in their booklet "The Value Line to Option Strategies"

Writing covered calls allows you to make money THREE different ways.

1) If the stock goes up to the exercise price and is called (bought), you make the difference between what you paid for the stock and what you received for the stock (the exercise price), PLUS the money you received for the option.

2) If the price of the stock stays below the exercise price, you will make the money you received for the option, PLUS you will retain the stock and you can then sell another option and increase you cash flow even more.

3) If the stock goes down less than the premium you received for the option, you will make the money you received for the option and you will have lowered the cost of your stock by the amount you received for the option.

Compare this with if you had just purchased the stock and NOT written an option - there is only ONE way to make money - the price of the stock would have to go up and you have no down side protection.

The advantage of this software application is that the investor (you) only need to "fill in the blanks" to determine you annualized return based on the inputs you provide. You then have the opportunity to make the decision as to whether the return on your investment meets your requirements.

For more information, please see The Altorfer System For Writing Covered Call Options Reference Guide

The Altorfer Covered Call System™ program is a Microsoft Windows® compatible application. The displays have been designed for a video resolution of VGA (600x480) or better. (1024x768 is recommended)

The Altorfer Covered Call System™ is distributed on diskettes with an installation routine. To install the Altorfer System, insert the CD in your CD ROM drive and double click on the "AFSInstall.exe" program, or the insert the first distribution disk into the floppy drive of the machine you wish to install the program on (e.g. A:) and run the "setup.exe" program on that disk. The installation routine will step through the procedure necessary to install the application.

Please report any problems to Technical Support (please see the last section of this manual for information about how to reach Technical Support).

The Altorfer Covered Call System™ User’s Guide assumes that you have a basic working knowledge of the Microsoft Windows® operating system. So for example, you should know how to perform simple Windows® operations, such as opening an application, and using pull down menus. If you are new to the Windows® operating system, please refer to your Windows User’s Guide for further information.

The tab key on the keyboard is used to move from one edit field to the next, this is the standard Window’s way of moving from one field or item to the next on the screens. By holding down the Shift key while pressing the tab key simultaneously (Shift-tab) you can reverse direction and go backwards to the previous field or item. This is also how one can easily move through any Windows Help without a mouse.

Often the formatting of data entered into an edit field doesn’t take place until you "tab" out of that field. For example, a user enters a "6" into a field for the current price of a stock and upon tabbing to the next field the "6" entered is automatically formatted or transformed into "$6.00". This is standard behavior for this program, which may help make your use of AFS a bit easier and save you some typing.

"Hot Keys" are single keys which select and activate a command option when pressed while holding down the "Alt" key (a double key combination). Hot Keys provide an alternate keyboard method, which can be used instead of the mouse to select and activate a button, tab, or command option. Many experienced users have found Hot Keys to be a much faster and easier way to navigate and to use the software, since their fingers never need to leave the keyboard. Hot Keys are provided for all of the buttons, tabs, and command options. The underlined characters on the buttons, tabs, and command options represent the Hot Key to be used for that particular choice.

You can always print your current "worksheet" grid and associated annualized returns by selecting the menu item "Print" from the Accounts menu. The printed report will include all information from the grid entries, plus the "Annualized Return" and "Called Away" tab calculations.

To access the Windows based online help, pull down the top level "Help" menu, and then select "Contents".

This is the main display of the program. Along the left, you have an expandable and collapsible "tree control" that lists all stocks and options for this account. The bottom section of the screen displays various information, depending on which tab you have selected. The grid that occupies most of the screen is the worksheet area to compare the returns of various strikes for a particular stock and covered call option strategy.

The first step in getting started with the Altorfer Covered Call System™ is to create an account that will hold stock and option data for you to analyze. To do this, select "New" from the Account menu option at the top of the screen. [See "Managing Accounts", page #8]

Once you have created your account, you should start adding stock that you are interested in analyzing for good returns from writing options. To do this, you should click on the "Add Stock" button at the top of your screen. [See "Adding Stocks to the System", page #9]

After adding stock, you should add the various options (different strike prices) that are interested in looking at. There are several places to get this information from (publications like the Wall Street Journal and Value Line, the internet – search for options, or from a full service broker). Once you gather the option information (strike, price, and expiration) you can enter this information by clicking on the "Add Option" button. [See "Adding Call Options to the System", page #10]

Once you have entered the stock and option data, you are now ready to analyze the your choices based on your investment preferences and return criteria. If you identify a strategy you wish to commit to, you should then complete the transaction by clicking on the "Add to History" button on the "Expiration Return" tab. At this point, you should confirm the price of the stock and the option (through your broker) and confirm the results of your analysis with the current prices. Once you have completed the transaction, your "owned" stocks and options will appear under the History tab, which lists all of your transactions.

Account operations are performed from the "Accounts" menu option. From the "Accounts" menu you can create new accounts by clicking on the "New" option or edit an exist accounts through the "Edit" option. The "Accounts" menu also allows you to delete existing accounts through the "Delete" option. You can open any selecting the "Open" option.

To add a new company and/or stock to the system, simply click on the "Add Stock" button at the top of the main screen. You will be prompted for information with the following dialog.

After you have entered all the appropriate information, click on "OK" and this company’s stock will be added to the system and available for covered call analysis.

To add a new option to the system, simply click on the "Add Option" button at the top of the main screen. You will be prompted for information with the following dialog.

After you have entered all the appropriate information, click on "OK" and this option will be added to the system and available for covered call analysis.

This dialog will allow you to import 15 minute delayed quotes from the Chicago Board of Options Exchange web site (http://quote.cboe.com/QuoteTable.asp) into the AFS Covered Call worksheet. You can get to this dialog by clicking on the small "world" icon in the Tool Bar or by selecting "Import Options" from the "Tools" pull down menu.

The Expiration Return tab displays the calculations for annualized return if covered option you sold expires and is not exercised, thus leaving you with ownership of your stock and the income you received for selling the option.

When the price of the underlying stock raises to the exercise price of the option, you receive the difference between what you paid for the stock and what you received for the stock (exercise price), PLUS what you received for the option. To see these calculations on a specific setup, select the Called Away tab. Important Note: The Annualized Return computed for Called Away is a return on this investment strategy, and uses the length of the option for the time invested, which may not necessarily be the same as the length of time you own the stock.

The History Tab displays a historical list of all your committed transactions with associated totals.

In all option symbols—the second to last letter signifies the expiration date and the last letter signifies the strike price. In using the Altorfer option

software these fields will automatically be filled in when you write the option symbol if possible.

Number of Options (3) (one option = 100 shares of stock)

All other symbols are self-explanatory.

The expiration date of all options is the Saturday immediately following the third Friday of the expiration month. Last day to trade or exercise expiring options is the third Friday of expiration month. If Friday is a holiday, the last trading day will be the proceeding Thursday.

Because this program depends on the combination of buying the stock at a certain price and selling the option at a certain price in order to get the return that you expect from the program, it is suggested that you give your broker a "buy-right" order. For example—you determine the price you would pay for the stock and the price at which you would sell your option—then you subtract the amount you would receive form the sale of the your options from the price you would pay for the stock and that would be the net price you would pay for the stock. Then you would call your broker and say "I want to ‘buy-right’ 300 share of Micron Technology at $63.50/sh and at the same time sell 3 options to open for $5.75 for a net to me of $57.75" ($63.50-$5.75) The reason you would use the "buy-right" strategy is that way you can be sure you will get the return you expected both on the trade and annualized. If you the buy the stock and then try to sell the option separately you may find that you will not realize the % return your program said you should get, because the option price can fluctuate wildly.

If you were really bullish about the stock you would sell an "out of the money option". But if you were less bullish about the stock or if you thought the stock might be going down you would write and "in the money" option. For example, buy Cube 300sh for $43.25/sh on 8/22/95 and sell 3 options with a strike price of $40 and an expiration date of 2/19/96 for 9.25/sh. So while you are agreeing to sell your stock for less then you paid for it you still would make a profit on the transaction because of the price you received for the option. And in this instance you would have great protection on the down side, in fact even though you paid $43.25/sh, you would not be losing money until the stock fell to below $34.00. Plus in the above example, if your stock was called you would still make $983.00 or 20% annualized return.

Many investors have stocks that they bought some time ago and now the owners find that they are owners of stock with substantial appreciation-in term of market value- but little in the way of percentage return from the actual dividends relative to the market value of the stock. Even though the investor could use extra income he is loath to sell the stock because he would incur a huge capital gain tax.

Now this is where he could use the Altorfer system to see how to he could use these ‘locked in assets" or what are sometimes called "hidden assets".

The investor might increase his cash flow as follows:

Assume that he owns 1000 shares of xyz which he bought 10 years ago for $20/sh for a total investment of $20,000 and now the stock sells for $60/sh for a total of $60,000 and assume the dividend yield is 1.0% of the market value or $600. Now assume that the investor can sell a 3-month option against the stock with a strike price of $65 for $4.00/sh or a total of $4000. Now only two things can happen-one-the stock does not rise to $65 and the option expires worthless and the investor has an extra cash flow of $4,000 with out spending one cent.

Now lets say that the price goes to $65 or above and the option is exercised and he would be required to deliver his 1000/sh of xyz; but to do that he would incur a huge capital gain tax, SO he has two alternatives—one way he could buy 1000 share for $65,000 and then deliver that stock and is paid $60,000 and that plus the $4000 he already received for the sale of the option makes his cash loss only $1000 which he could use against other stock gains. But at the same time his original stock increased $5000 so he would still have a net gain of $4000.

The second approach is that the day before the date of the expiration of the option if the stock is $65 or higher the investor could buy back his option and sells an other option at a higher strike price with further out expiration date. The day before the expiration of an option the option would no longer have any time value, therefore the price of the option would only be its intrinsic value. But the new option that the investor sold would have in its price the "time" value PLUS the intrinsic value. Generally, the sale of the further out option would be enough to cover the cost of buying back the near option plus some profit. The nice thing about this strategy is that the investor can determine the results before he does anything.

Bonds and Money Markets have a fixed rate, which is based on the going interest rate at that time, usually between 5% to 8%. While covered options can have a return between 18% to 40%. they can be almost as safe as bonds. Some will say that bonds are safer because it is based on a fixed amount of money at the due date but very few investors keep bonds until the due date but in the meantime bonds can fluctuate because of the changes in interest rate.

And bonds over a period of time generally lose buying power for the investor because of inflation. By paying attention to writing covered call options an investor can beat bond and money market returns by considerable.

1. Write covered call options on stocks that are in an upward trend.

2. Writing call options should generally be done on stocks you would be willing to own.

3. Underlying stocks should be ranked highest to increase in value.
(Value Line #1 or #2)

4. Underlying stocks should generally have a Delta of over 100.

5. Short-term options sold at the money will usually give the writer the best annualized return. But the investor can determine which option to sell by trying the various options in the Altorfer options software.

6. The investor should always consider dividends—to increase return. Try to buy stock before ex-dividend dates.

7. If the annualized returns shown on Altorfer option software is less than 18% the premium for the option is probably too low.

8. The price of the option is directly affected by changes in the underlying stock’s volatility. More volatility in the underlying stock boosts the price of the option. When volatility eases the option declines.

9. While writing covered call options is basically a bullish strategy there are times when you can use writing "in the money" options as a defensive or bearish strategy. If you think a stock might be going down by writing in the money option you’re protecting yourself to the extent the call is in the money PLUS the money you received for the option.

10. Premium levels tend to be driven by volatility expectations rather than by one’s perspective on the market. The more uncertainty there is about a stock’s future direction, the higher its price volatility and premium levels are likely to be. Conversely, when stocks exhibit a clear trend, stock price volatility tends to be low and the time value of options tend to contract.

(The most used—contact your broker for strike prices not included here)

If you are having trouble with the program, please call Arizona Financial Software, L.L.C. at 1-800-256-9825 between 9:00 - 5:00 MST