Leg 8 — Oscillating Capital Extraction Rule (ELF)

Treat quality stocks as reusable capital engines, not static buy-and-hold positions. When valuation oscillates between cheap and expensive, this rule uses deep ITM capital extraction and long-dated covered calls (or secured cash puts) to harvest gains again and again from the same shares, while your float keeps compounding.

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Oscillating Capital Extraction Rule — Reusable Capital Engine

The Oscillating Capital Extraction Rule assumes valuation will oscillate around fair value. When a quality name becomes overvalued, you perform a deep ITM capital extraction. When it normalizes or pulls back, you reset with a long-dated covered call at a fair-value-based sell price. If it gets expensive again, you repeat. If it goes nowhere, you keep the one-time gain and eat theta. The same stock can feed the float engine multiple times over many years.

ELF — Overvaluation & Initial Capital Extraction

Metric	Value / Notes
Shares	100 (example size; scales linearly)
Fair Value (Model)	≈ $65 / share
Market Price at Entry	≈ $120 / share (clearly overvalued)
Capital Extraction Call	Sell deep ITM $65 strike, Jan 2028
Premium Received	$70.50 / share (≈ $7,050 on 100 sh)
Intrinsic at Open	$120 − $65 = $55.00 / share
Time Value at Open	$70.50 − $55.00 = $15.50 / share true gain
Effective Sale Proceeds	$65 + $70.50 = $135.50 / share if held to expiry
One-Time Gain vs Cost	$135.50 − $120.00 = $15.50 / share (≈ 12.9 %)
Framework Interpretation	Locked capital stays invested in ELF, but you’ve already prepaid a double benefit: upfront cash and a high guaranteed exit price if assigned.

At this stage, ELF is just another capital extraction project: you hold a deep ITM call into the future while your extracted cash can be earmarked as float and redeployed.

ELF — Pullback, Reset & Repeatable Loop

Metric	Value / Notes
Price Action (First 30 Days)	ELF falls from ≈ $120 to ≈ $70
Deep ITM Call Value	Jan 2028 $65 call collapses; bought back around $37
Realized Premium Kept	$70.50 − $37.00 = $33.50 / share in ~30 days
New Covered Call	Sell Jan 2028 $90 covered call at ≈ $27 premium
Total Net Option Premium to Date	First leg kept ≈ $33.50 + new $27.00 = $60.50 / share collected so far (timing and exact prices will vary in real trades).
New “Sell Price” Anchor	Target exit now centered around $90 instead of $65
If ELF Rallies Again	When valuation is high vs fair value, run another capital extraction: close the $90 call if cheap, then sell a fresh deep ITM call based on updated fair value.
If ELF Goes Sideways	You keep the large one-time gain from the first extraction plus theta decay from the $90 covered call all the way to Jan 2028.
If ELF Declines Further	You can buy back the $90 call cheaply and reset again with a new long-dated call closer to updated fair value—still after banking previous premiums.
Key Insight	The stock becomes a permanent oscillating engine: overvaluation → extraction, normalization → reset, repeat as many cycles as valuation offers you.

You are no longer dependent on ELF “going to the moon.” Repeated overvaluation cycles let you harvest gains multiple times from the same 100 shares, while your float keeps working in T-Bills or other extraction projects.

Overvalued zone: use deep ITM capital extraction calls sized off your fair value model.
Normalization / pullback: buy back cheap, then write a long-dated covered call with a new sell price anchored to updated fair value.
Repeatable loop: every time valuation gets stretched again, repeat the extraction–reset cycle on the same shares.
Sideways markets: even if price “goes nowhere,” you still keep the one-time extraction gain and ongoing theta from long-dated calls.
Undervalued zone (mirror side): use long-dated secured cash puts to enter quality names at a discount so they can join this oscillating engine.

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Disclaimer: Educational illustration only; not investment advice. Options involve risk, including the potential loss of principal. Dividends, volatility, and corporate actions can change outcomes. Use your own valuation discipline, position sizing rules, and risk controls.