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American Capital Agency Corp. Message Board

  • lenloc lenloc May 27, 2011 11:02 AM Flag

    Cost of funds scheduled to rise

    Spoke to a well informed expert on interest rates who opined that agnc's very low cost of funds will almost certainly rise by at least half a percent and probably more within the next 3 months. The spread will narrow by about the same amount. No wonder they are keen to get an spo done before then.
    Investors better authorize the 300mm shares they want pronto.
    I thought I'll pass this piece of info. Good luck

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    • I'd bet that even your broker can't explain the formula.
      I've also been selling puts for many years. When the s**t hits the fan in a severe downturn, I've been caught in a margin squeeze when I was forced to come up with some more capital at a real bad time.
      I'd come up with the money, and more and more was required on subsequent days. Sometimes I received ZERO credit for some low priced stocks in my portfolio.
      It seemed that no one could explain the calculation to me. I think the rules were changed daily.
      Overall.....selling puts is wonderful.....until it's not. BE CAREFUL!
      It's a leverage game that can hurt big time in a crash.

    • Thanks Quad...good information

    • This is Fidelity's stated margin requirement for equity puts:

      > Equity puts: The higher of the following requirements:
      25% of the underlying stock value, minus the out-of-the-money amount, plus the premium
      15% of the strike price, plus the premium,


      Quad

    • There is a formula brokers use. I trade with Fidelity. The margin used is not the full cost of the stock at strike price but significantly less. It could vary between brokers Best to ask your broker. I haven't bothered to work the details because I am nowhere near maxing out.

    • Here's the link (didn't make it the first time):

      http://www.imdb.com/character/ch0021981/quotes

    • Lenoc,

      Good post..you did not answer the question re. the margin requirement for holding the short puts. What percent of cash is required to hold a given short put at your brokerage?

    • Hey Richard,

      Memory Lane this AM. The character "Sam Drucker" was on all three shows. Regarding PC, I couldn't wait to see Meredith MacRae (Billie Jo) every week. Of the 3 shows, TBH nailed the "Fish out of water" pitch perfect (GA was a close second). I still quote Jethro Bodine to this day (http://www.imdb.com/character/ch0021981/quotes). Not exactly Dostoyevsky, but hey, it's important to be well rounded :-) .

      I haven't had my coffee yet, so I'll defer to others on your "real" questions.

      Cheers

    • When puts are sold you get money from sale up front. Margin power is utilized but there is no margin interest charged unless the stock falls below your selected strike price and you are forced to buy it at that price called "assignment". Hence one chooses discounted (usually 20-25%) strike price unlikely to be reached. And if assigned then one immediately recycles at same strike price for a date further out. The recycling always makes a little more money never a loss. On assignment you may have to pay margin interest for just one day while you recycle. That's all. Make sure you deal in blue chips which will not crash and "disappear" on you because then the price may be so low you won't be able to recycle. As long as one can recycle there is no risk of loss....ever! I had to recycle Kellogg50 and Coke60 a couple of times in 2009/10 because I picked rather high strike prices to get more premium. But eventually the puts expired as both stocks went above strike prices and I made a good deal of money on both. Ability to recycle is crucial. Hence blue chips at not too high strike prices.
      If you do not have a sufficient portfolio and margin power then don't bother with selling puts. Because you will only be able to make penny ante trades not worth the bother. My individual put premium ranges between 3K and 15K and at any one time I have about 20 puts open. Never took a loss so far. I don't sell puts on mreits except once on nly15 and nly10, more than a year ago when nly was lower and premiums were much higher. They have shrunk so I have gains. I am not taking the gains yet because they should expire (go to zero) on my chosen strike date next Jan. I would not sell puts on agnc as I am afraid it may crash and burn becoming non recyclable. Hope this helps.

    • Morning all (7 am set here). As I lay on the couch waiting for the sleepy head GF to wake up so we can go to the beach for a couple days enjoying my fav reading material, I have a couple comments and a question.

      1) I watched Bill Gross a couple months ago on CNBC basically call for bond Armageddon and saying Pimco was completely out of gov bonds. Since then they dropped almost 50 basis pts. Will he be right in the long run? Most assuredly. Do we know when that will be? Doesn't seem like it. The macro situation looks to be over riding QE2's demise. The view that maybe after this divi period a wait and see approach or cautious entry points might be well taken. I'm not sure how soon I will jump in on next SPO. Even this time it paid to wait a few weeks as the price dropped well below the spo.

      2) Selling puts question. Doesn't this tie up a tremendous amount of capital on a 30 (or definitely 60) dollar stock? A 100 sold $30 puts commits $300,000 - even at 70pct margin that is $100,000. And is the money from the sale " free" or basically set aside until the position closes? Never sold a put so just looking to get educated.

      3) Anyone else ( and how many here were not wearing diapers when these were on? Lol. I voted for Hubert Humphrey :) notice how GA Petticote Junction and The Beverly Hillbillies were all tied together? And the all 3 of daughters initials were BJ -hey I was a teenager lol

    • Thanks, Quad.

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