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American Capital Agency Corp. Message Board

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  • slegermark slegermark May 13, 2012 10:56 AM Flag

    I sold today.

    at a good price, so I sell 33calls. We get closer to xdiv day, and the pps is above 33 and they do not get called away.

    Do you buy the calls back and sell the shares?

    Do you just sell the shares knowing the pps will drop and the shares will not get called away because opex is soon to follow the pps drop?

    Or just not sell the calls and wait for my price?

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    • Hi Slegermark,

      >>at a good price, so I sell 33calls. We get closer to xdiv day, and the pps is above 33 and they do not get called away>>

      If the PPS is above 33.11 @ EX, they(shares) will(99.99%) be called away on the EX.

      If you doubt this, just roll your 33's to 31's for a 1.20 credit and hold over the EX. If the shares are not called, wooohoooo, the spo comes and cover the 31's for a 1.00 net profit(on the 31 option transaction). Doesn't work....

      If you want to sell your shares B4 EX, then yes, you would cover the CC by buying it back and sell your shares. Use 33.33(1.00 above current PPS as a proxy)as the PPS for covering your 33's. The 33's would be trading at .66(current 32 ask) you would cover for a net .55 debit(.66-.11), but your capital appreciation , from today, is 1.00. Sell the shares for a net .45 gain(1.00-.55).

      As I mentioned, you would have been ahead without the CC, but why do folks sell CC's? Because they(should) be content with their shares called at the strike they sell(duh, do they not realize their shares can be called at the strike , when entering the trade?).

      On this traditional(no more) channel dwelling stock, CC's were a slam dunk...sell the 28Puts and 30Calls's(PPS rarely penetrated..BATESAT). Now, there will be B'ing and Moaning because we have a high flier. CC's disrupt gains in this environment. So the moral, don't sell CC's if you will not be content with your strike price as your final sale price.

      Cheers,

      DocReits

 
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