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American Capital Agency Corp. Message Board

  • reits_r_us reits_r_us Dec 12, 2011 12:56 PM Flag


    I couldn't resist a small dip in the water today as I begin building a position in my favorite MLP.

    I entered the 12Jan60/65 Buy/Write Spread for 3.90. BE @ 63.90. Potential profit if PPS > 65 @ OPEX is 1.10.

    If the PPS declines to Dec 31, you can probably get this spread or the 55/60 for a couple bucks or less.

    My bet is that we see at least 65 by Jan OPEX. So the lower you get these spreads the better. You have to hold for expiration for maximum gain.

    Potential maximum loss is the cost of your spread if we finish below 60 by OPEX.

    Your thoughts?

    BTW, A variation of this spread on AGNC after EX is the Mar 27/29 ratio 1/3, Buy/Write for zero cost. Potential gain 2.00/spread by Mar OPEX. Loss begins after 30. So we buy 30's as time goes by(two/spread) to cover the spread for risk above 30, so the entire cost of a spread is only two 30's with the potential 2.00. You could even sell equal numbers of Mar 22Puts to off set the cost of the 30's making it a zero cost trade with no risk to the upside and risk below 22 only.

    It is THE best opportunity, IMO, for this stock that I have discovered

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    • I meant to say something about that. I went to the LINE board a few days ago.


    • if you want to have a laugh about message boards, you need to read line. absolutely out of hand. i dont go there anymore. they have conspiracy theories about posters, etc.

    • me too. There is one thing you dont understand. I have to report my trades to the uk and us. the more trades, the more comolicated it can be. plus, i cant use my 1099s, because the uk is fiscal. i have to translate each buy andvsell into pounds. my total tax bil is ridculous for complying in two countries, so there is an underlying reluctance to engage in trades, particularly more challenging ones. i have just been audited for two years. so i try to keep it simple.

      i dont like waiting, and i dont like using margin.

      finally, your calculation is the same as mine.

      so, i dont always bite on everything, and i anallyze things to desth.

    • Sorry you didn't like my post Ben,

      It reminded me of the Mad Hatter running around in circles....see for yourself why I was thinking "what the heck is Ben talking about Puts for in a Bull Call Spread"... Still think you are the best Ben...;-)

      >>At $75, I make $400, I lose $20,000 on the exercise and sell of the puts and pick up $20,400 on the calls.>>

      I think it is all pretty humorous....

    • Doc,

      You know that I care for you, as you have expressed to me. But I don't like your post, as it is not very fair or complete. Ephort is a good guy and I have said that many times. I did spend some extra time last night to understand the deal, which clearly it would take us hours to go through as my approach is not the same as yours. However, you can't just take bits and pieces of what I did and re-post and present it as garbage. I can most definitely be accused of over doing it a bit.

      Here are your assertions:

      1) You are raving mad man? No, I am quite sane. I work everday and run a team of six senior analysts who perform credit work on 220 cases. Insanity wouldn't work well.

      2) You are alledging that I sold the 65 puts? No, I did not

      I did sell the strike 65 calls and am okay on that and was waiting to do the rest, pending futher analysis, which I did last night.

      3) You are alledging that I did not know that puts were not in bull call spread. Not true at all.

      What I was considering doing was what I did last quarter, selling puts only. I can buy back my calls today. Big deal.

      I don't believe we will hit $60. Just my view, but I don't care because I am playing other things. I lived for weeks thinking KMP would drop and it hasn't. I will move on as an example.

      Sorry about this.

    • "The March stirke 70 puts are selling for $9.70, that means a low strike price of $60.30"


      I know you don't like to hold long and that BE 60.30 is only if you hold until March expiration. If the PPS goes to 60.30 tomorrow, the bid ask will be 12/14, and you will be down about 4.30 to get out. Punch in 60.30 as PPS and you will see.

    • Ben,

      I like this trade but I think you are shorting yourself. The time that the PPS would reach 70 would be at the EX date of Feb 2nd(?). That would leave only 46 days to Mar OPEX, which when fed into your calculator would bring the premium down to 4.00 not 6.00. So you would make an extra 2.00 for a 5.70 profit.

      Not bad!

    • Ben,


      You are a raving madman who is totally out of control. Ephort will be a gentleman and tell you all the good points you bring up. That is a pile of sh&T.

      You are totally confused and on the one hand talk about Calls and then you talk about Puts. You told us you sold 65 Calls. I bet you sold the 65 Puts, didn't you?

      No wonder you are confused. There are no Puts in this spread. It is a Bull Call Spread.

      This basically repeats what I already told you.

      "If the price of the shares drops to $58, the strike 60 long calls are worth $2.30, which is the same price as I received from the sold strike 65 calls. So, that is my breakeven. I would have to sell at that point, and hope it didn't go the other way. Now, I could just hold on I suppose. "

      No, you also have to buy back the short Calls, which should be much less than what you received as a credit but it still must be part of the equation.

      "On the other side of the equation if the stock hits $67.30, then I am going to have come up with 2,000 (assuming I buy, sell 20 calls). 2,000 x $65 = $130,000. I then have to give up those shares for $130,000 and I get to keep my premium of $2.30 or $4,600. If the share price hit $70, then I have to come up with $10,000 to cover. At $75, then I have to lose $10 per share on 2,000 shares or $20,000. I have to have $130,000 to cover through cash or margin. "

      Where are you getting all of this? You have to come up with nothing. Please revisit my previous post and the link that reiterates the same. You are covered by the long Call side of the equation so you do not lose anything even if the PPS goes to 1000.

      Fidelity will auto exercise at expiration and then sell/buy the exercise automatically of both the short calls and the long calls. They cancel each other and if the PPS is above 65 at expiration you simply make 5.00 period.

      The rest of your post is you running around in Alice's Land like the Mad Hatter. STOP!!!!!!!

      Read The Gentleman's posts and especially mine. Read, read, read, and pray for divine intervention. I will pray also that somehow the synapses will heal and you will understand the quintessential beauty and wonder of the Bull Call Spread.

      Your stern friend. ;-)


    • Here is a possible trade I might do. The March stirke 70 puts are selling for $9.70, that means a low strike price of $60.30. If the stock rises to $70, the puts will drop to $6.00. So, I can pocket $3.70 on 2,000 or 7,400 on the buy back. Yes, risk, but I can exit. Even 1,000 x 3.70 = 3,700.

    • I accidently posted on the other board. Okay, 12/17, last years low, very interesting. I think this is the low coming. The question is how to trade it best and easiest. For me, it might be sold puts, because that is how I made $3,000 last quarter. I just don't like the implied volatility. I like your option trade now that I got my head totally into it, but I just don't know the trade fits my style. Don't get me wrong, I like trying new things, but I have to decide if maybe I do this in a small way. If we go from $63 to $70, I can make plenty on any upside trade. So, Doc thanks for all of your work on this, but this trade had me scratching my head until I modeled it all of the way through.

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