Well said Ephort,
The trick as you suggested is to accurately predict the future price by expiration, in my case, or short term for others, ESP on th leaps.
I have been looking at the 13Jan 40Puts on a Butterfly 40/30/20 for 5.00 or better. At price of 30 at that time you have a double, but that is a long time out there.
I am buying deep ITM DecPuts35 and paying for them with a short Put spread 27/26 on a -9/8 ratio, for 4.00 or better.
My current look is short Dec29Calls for .5 or better on a Strangle with a Dec27/25 Short spread for .50 or better. Loss occurs above 30 by Dec 16th or @26 to 25. Max profit 1.00, Max loss 1.00 on the down side. Pretty good odds.
"If it's not them, then it has to be something else. But what?"
Hey -- did you read what I wrote?
Theoretical put pricing demands higher prices for puts in the presence of high dividends. The practical effect on MMs is just one of many equivalent ways of seeing why that is. Others involve the possibility of synthetic arbitrage. But it has nothing to do with FUD -- the latter would express itself in higher prices for all options (higher IV), as put-call parity requires. The high put prices for AGNC are due to dividends, not implied volatility.
So what you're saying is, the MM's have also found someone willing to buy Puts at ridiculous prices.
The people buying the Puts have to have a reason to value them that highly.
The only reason I have seen after months of rolling my eyes and ringing the cash register is Citi's whackadoodle price targets, which have been crazy negative for years, even while the stock is paying everyone in sight.
If it's not them, then it has to be something else. But what?
(Dividends and interest rates both are inputs to the option pricing formulas. Dividends increase the relative price of the puts, for the above reasons, whereas interest rates decrease it. Both of these effects are built into the theory to prevent arbitrage using synthetic positions -- which actually equates to the MM hedging situation).
So yes, selling naked puts, especially the leaps, is not a bad thing to do. Unless you believe that any one of the FUD items out there can get legs at any point...
You give Citi too much credit -- they don't have that much power. As I have mentioned before, AGNC puts are fatter than the calls for one reason only: market makers hedging the puts must short shares, and that costs them the dividend. You can confirm this doing the following:
1. Go to the CBOE option calculator and get the theoretical prices for the 27 put and 28 call (which are approximately equidistant from current share price) for January or after. You will see a big difference, which becomes more pronounced as expiration becomes more distant into the future (that's because multiple dividends are involved). Look at the option quotes -- they follow theoretical pretty well.
2. Now look at the same calls and puts before January (October, December). These are much more in balance, as no dividends intervene.
Not short AGNC. Short Puts on AGNC. Theory: Because of Citi's persistent and large negative bias on the stock, there's a persistent and oversized premium on Puts. I've mentioned here before that I could find no excuse for Puts to be so overpriced. There's no apparently imminent trouble. But there is Citi's consistently bad advice. So I keep writing Puts and putting cash in my pocket. And now I know what to watch to know when to stop doing that.
2-year-old ratings are essentially scrap paper.
The SEC should regulate Analysts, and make them update their ratings, targets, and opinions on every stock they "analyze" daily, because, as anyone can see, the analysis itself often causes a change in the stock that moots the possibility of further change caused by the factors in the analysis, within minutes. Anyone coming upon day-old analyses is going to trade into a market that has already discounted it.
The least they should do is print "ANALYST OPINIONS MORE THAN 8 HOURS OLD MAY NOT CONTAIN INFORMATION WITH ANY REMAINING VALUE" at least as large as they print "PAST RESULTS ARE NO GUARANTEE OF FUTURE PERFORMANCE" or "OPTIONS TRADING ENTAILS SIGNIFICANT RISK AND IS NOT APPROPRIATE FOR ALL INVESTORS."
In a perfect world, they'd also say "SPECULATION IN PUBLIC STOCK MARKETS IS NOT INVESTING, IT IS GAMBLING." But then they'd really be giving the store away.