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American Capital Agency Corp. Message Board

  • mansionroad15 mansionroad15 Oct 26, 2011 9:40 PM Flag

    Nov. 19 28 puts

    What price do you think the Nov. 19 28 puts will peak at?

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    • yourbestfriendintheworld yourbestfriendintheworld Oct 27, 2011 2:24 AM Flag

      A very good question, considering I'm sitting on a pile of them.

      At $27.02/share there's $0.98 of intrinsic there, and the bid on the out-of-the-money version this afternoon was $0.35, so I'd say we're at least looking at $1.33.

      But, that $0.35 was when the shares were at about $28.60, and $27.02 is $1.58 less than that. So the max would likely be $1.93.

      But, delta being what it is, and the typical action after a SPO being what it is, I'd say the greater probability is that it's at or near the minimum I just gave.

      It could even be less, since the stock price rarely jumps down to the offering price. The underwriters will get a little vig from their clients, who will send their new shares to market only if the market pays more for them. And the market is only too happy to, since it's still a fat discount to the pre-SPO price, and the yield is still in the 20's (any price below 28 gives 20% or better).

      Now, once the madness ends, the stock could go any which way. So if you have the guts, holding to next week may pay you off in spades, and diamonds, and ducats. Or it could suck the life out of your play. That's why there's guts involved.

 
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