Thanks for your interest in The Wagmore Advisory Letter!
I hope the following set of FAQs will help answer any questions you may have about the new service… and that, after reading through them, you will perhaps even decide to become a subscriber!
Q. What is The Wagmore Advisory Letter (TWAL)?
A. In a nutshell, TWAL is an investment “newsletter” published in a “running blog” format (versus as a “periodical” – more on this below) that attempts to help investors make money by not just owning stocks, but by also writing covered calls against the positions it holds in those stocks.
The service was actually launched in 2013, and though it did a good job of remaining true to its objectives in the early years, because a) its performance is tracked by a real world account, b) I am a big believer in always “putting my money where my mouth is,” and c) I wanted to have as much of my own money as possible invested in MannKind as the stock started to sink into “bargain basement” prices in 2016-ish time frame, I allowed the account tracking TWAL’s performance to eventually become 100% invested in MannKind on an assumption that the oversold condition we were seeing in that stock at that point in time would be short-lived (the account has been sitting on $14 cash and 2,000 shares of MNKD for several years now).
Of course, as those of you who have been subscribers to Nate’s Notes already know, the oversold condition lasted far longer than I would have believed possible, and so I essentially put the service into “hibernation” while waiting for the stock to finally return to more realistic levels.
Now that MNKD has finally perked back up a bit (and I am anxious to get TWAL up and running again!), I am bringing the service back online.
Q. What are covered calls?
A. You can learn more about covered calls on this page of the website:
https://www.notwallstreet.com/nate-piles-option-basics/
Q. Do I need to have experience with options to take advantage the ideas in TWAL?
A. Ideally, you should have some familiarity with how to enter option trades on whatever online platform you normally trade through; however, even if you are just starting out, all recommended trades will be spelled out in a manner that should make them fairly easy to duplicate in most online brokerage accounts (that being said, please note that figuring out how to do so on your particular platform will be between you and the support team provided by your brokerage firm, as I will not be able to provide any support on this front).
In addition, please note that in order to write covered calls, you must be approved to do so by your brokerage firm! Gaining approval should be as simple as filling out a quick application online and/or calling a representative from the firm to help you, but if you decide to subscribe to TWAL, make sure that you have received such approval before the service (re)launches in early April!
Q. What is a “running blog” format?
A. Unlike Nate’s Notes and The Little River Investment Guide (LRIG) which both come out once a month on a more-or-less regular schedule, a new TWAL post will published whenever I decide it is time to make a trade (“Trade Alerts”) and/or I want to send out an update on one or more of our positions but not take any specific actions (“Updates”).
As happens now with Nate’s Notes and LRIG, whenever there is something new to look at on the website, the system will send out a notification to all TWAL subscribers (and it will clearly state whether it is a time-sensitive “Trade Alert” requiring action, or it is merely an “Update” that can be looked at later); however, please note that because the trading recommendations will be happening in “real time,” you should only sign up for TWAL if your own circumstances allow for your to receive and act on emails during normal trading hours!
Last time around, there were typically 1-3 Trade Alerts and/or Updates posted each week, and I am anticipating this will the case this time around as well.
Q. How will trading actually work?
A. Once a Trade Alert has been sent out, I will wait 10-15 minutes in order for subscribers to get “first crack” at the trades before I enter them in the real world account that is set up to track the performance of TWAL.
That being said, given that option (and even stock) prices can sometimes move very quickly in volatile markets, there is a “risk” that the prices associated with the trades made in the real world account may end up being substantially different that the ones associated with individual subscriber accounts.
Over the long-haul, the discrepancies should even themselves out, but I do want to acknowledge the reality of the situation (as well as point out that, as time goes by and I start to get a feel for how the trades we are making are impacting the prices of the options we are targeting, I will be doing my best to making trading recommendations in a manner than improves the odds of everyone being able to make the trade).
Speaking of which…
Q. What sort of stocks and options will you be recommending in TWAL?
A. Due to the fact that you can only write options against round lots of 100 shares of a stock (and there is not currently a whole lot of money in the account to work with), I will be focusing on finding stocks that are trading for $20 or less and have a reasonable amount of open interest in their options.
In addition, though I may, at times, also write in-the-money calls, my plan is to mainly be writing calls that are slightly out-of-the-money, but doing so in a manner that we will be able to count it as a win whether the calls expire worthless or they get exercised and we have our stock called away from us.
As mentioned above, there are currently 2,000 shares of MNKD in the account that I use to track performance, and though I have not yet made up my mind whether to start by solely writing calls against small lots of that position… or to write calls against a portion of the position but also make outright sales of another portion of the position in order to redeploy that capital into other stocks against which we can write calls (I will make up my mind as the official launch date gets closer and see what it is actually going on with MNKD at that time)… that should give you a sense of roughly how much capital you would need to get started.
Of course, though I will be making trades in this smaller account, you could easily scale things up to larger account sizes, provided you were doing so in round multiples – i.e. if your account was three times larger than the one I am using for TWAL, you could buy 300 shares and write 3 calls against it for every 100 shares and 1 call I write, for example; 500 shares and 5 calls for an account five times larger… and so on and so forth.
Q. What does the “running blog” format actually look like?
A. The following is cut-and-pasted from “the early days” of TWAL, and though I may change things slightly this time around, it does a pretty good job of showing what you might expect in any given month…
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TRADE ALERT 1/22/14 (10:15am Pacific)
As we hoped would happen last Friday, Cirrus Logic and NVIDIA managed to close below the strike prices we had written calls at for those two positions, and thus we still have those shares in our portfolio against which to write some new contracts.
Actions to take:
- Sell 2 Affymetrix Mar 22 2014 $10 calls with a limit price of $0.70 or better (o.b.)
- Sell 1 Cirrus Logic Feb 22 2014 $21 call with a limit price of $1.20 o.b.
- Sell 1 NVIDIA Feb 22 2014 $16 call with a limit price of $0.55 o.b.
- Sell 3 TriQuint Feb 22 2014 $9 calls with a limit price of $0.55 ob.
Comments:
As a reminder, all of the above should be entered as “sell to open” and “good ’til cancelled (GTC)” orders (and, if you are new to the newsletter, please make sure that you own the underlying shares before you try to write the contracts!).
As you can see, I am writing calls against everything in the portfolio… with the exception of our MannKind (MNKD – $5.64) position.
As it stands, I continue to believe the odds of receiving good news (and, presumably, a significant pop in the stock price) when it comes to MannKind continue to outweigh the risks of getting bad news over the near-term, and thus, I am not willing to write calls against that position under current circumstances (especially if we are able to get the rest of our portfolio hedged via execution of the trades listed above).
In addition, please keep in mind that because half of our Affymetrix position was called away last week, there is also a small chunk of cash sitting in the account that I plan to put back to work in the near future.
Outcome in real world account:
- 1 Cirrus Logic Jan 18 2014 $20 call expired worthless on 1/18/14
- 1 NVIDIA Jan 18 2014 $16 call expired worthless on 1/18/14
- Sold 1 Cirrus Logic Feb 22 2014 $21 call @ $1.20 (1/22/14 11:25am Pacific)
- Sold 1 NVIDIA Feb 22 2014 $16 call @ $0.55 (1/22/14 12:42pm Pacific)
- Sold 2 Affymetrix Mar 22 2014 $10 calls @ $0.70 (1/23/14 7:54am Pacific)
TRADE ALERT 1/17/14 (6:54am Pacific)
Cirrus Logic (CRUS – $19.45) and NVIDIA (NVDA – $15.99) have continued to trade right around the strike prices that we have written calls at for each stock, and though a lot can happen in a day, it appears they are probably going to take things right down to the wire for us with regards to whether or not they will finish “in the money.”
In addition, we also have some calls written against our TriQuint (TQNT – $8.52) position, and though many of you probably still have some calls written against your Affymetrix (AFFX – $9.31) position as well, I am afraid that our real world account actually received an early “assignment” yesterday for 200 of our Affymetrix shares, and thus they are no longer in our portfolio.
Based on how things are trading these days (and the fact our own Affymetrix stock has already been called away from us), I am recommending the following trades this morning:
Actions to take:
- Buy 3 TriQuint Jan 18 2014 $8 calls “to close” with no limit price (see comments below)
Comments:
With regards to the price you enter to repurchase your TriQuint calls, even though it says “no limit” for the price, you should actually enter whatever the shown ask price is for the contracts when you get around to placing your order (i.e. you will enter a limit price on your order form). The goal is simply to buy back the contracts at whatever price they are trading at when you place the order, but given that sometimes funny things can happen with “market” orders on high volume days (as are typical ahead of expiration), it is better to specify a price than leave things wide open for someone on the other end to scalp an extra nickel off you, for example.
For our other two chip positions, given they are both currently trading just a bit under the strike prices of the calls we have written against them, please note that I am going to take our chances with our Cirrus Logic and NVIDIA positions and will be comfortable if they end up getting called away from us over the weekend (i.e. they finish “in the money” today).
Finally, please note that since our real world account has already had its Affymetrix position called away from us, you should probably allow it to happen in your account as well. Yes, we may buy those shares back in the future, but then again, we may find other stocks to buy instead (especially since we still have a position in the stock).
Outcome in real world account:
- Sold 200 AFFX @ $7.50 via exercise on 1/16/14
- Bought 3 TriQuint Jan 18 2014 $8 calls to close @ $0.60 (1/17/14 7:16am Pacific)
Options Expiration This Weekend 1/15/14
Though our Affymetrix and TriQuint calls are pretty solidly “in the money” with two trading days to go before expiration, our Cirrus Logic and NVIDIA calls look like they might go right down to the wire before we know whether they are likely to be exercised over the weekend.
Just to refresh your memory (or bring you up to speed if you are new to the newsletter), our real word account that we are using to track our performance currently consists of:
- 400 Affymetrix (AFFX – $9.49), with 2 Jan 7.5 calls written against the position
- 100 Cirrus Logic (CRUS – $19.89), with 1 Jan 20 call written against the position
- 1,000 MannKind (MNKD – $6.01), with 0 calls written against the position (more on this below!)
- 100 NVIDIA (NVDA – $16.01), with 1 Jan 16 call written against the position
- 300 TriQuint Semi. (TQNT – $8.37), with 3 Jan 8 calls written against the position
- $302 cash
At this point in time, I am not taking action on any of the positions; however, I wanted to post this bulletin tonight (Wednesday) to give you a heads up that I will be posting a trade alert shortly after the market opens on FRIDAY morning to let you know how to handle each of our positions that have options expiring over the weekend.
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Q. Will you be taking tax considerations into account?
A. No – because everyone’s tax circumstances are different, I will not be trying to take tax considerations into account when making trade recommendations.
Q. How much will the service cost, and how do I sign up?
A. The regular rate for TWAL will be $499 per year.
Thanks again for your interest in The Wagmore Advisory Letter – I look forward to the possibility of having you on board as a subscriber!
Cheers!