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American Capital Agency Corp. Message Board

  • return5x return5x Mar 8, 2012 2:31 AM Flag

    March 8 Actions if Short Puts?

    Primarily for Doc, but all replies welcome -

    I've been (and others as well) following some of the trades suggested under the Crumbs thread.

    If we are now sitting short March30 puts and long June30 puts, what is the best course tomorrow? Close out both ASAP? Wait to see if the March shorts are assigned (which will not be known until Friday at the earliest)? Or wait to March expiration and maybe by then the PPS recovers so fast they aren't exercised at all? Something else?

    Similar question if short March30 puts and long March31 puts... same approach, or different?

    I'm looking forward to seeing how this all plays out tomorrow.

    Thanks in advance,

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    • As long as there is any time value on them they shouldn't be exercised. You might want to think about rolling them to April. That's the whole point of diagonals and calendars - you are trying to roll the short front months.

    • Hi 5x,

      I have both versions in play already. I have lots of the Long June 30's and short Mar 31's and 30's. And I have Short June 28's and short Mar 28's. I think both will work out fine.

      I think we will have a quick recovery, closing over 30 tomorrow or by Friday for sure. This would preclude any assignment. If we are assigned, I will sit on them. Home run. Got .34 for the 30's, so net 29.66, nice entry. So sell them on Friday for 30.00 and you made .66/share. Score. Might want to wait for Mar OPEX and sell them for 31.00.

      You don't want to exercise the June 30's. That would be a loss because you would be short from 30 and long from 30, which would wash the Calendar, and you would be down by the original difference between the two premiums. Simply sell the March assigned shares if you are cash strapped.

      Little different for the Mar31/30's. If the 30's are assigned, score! Immediately exercise the 31's and you just made 1.00 less the original debit paid on the spread. God help us if YBF is reading this. This is what he doesn't understand. Assuming you paid about .50 for the original spread, you end up making a profit of .50, (1.00-.50).

      Make sense?


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