AGNC BULL PUT vs BULL CALL SPREAD, on the DEC CONTRACT
So I know, I know, another crazy idea by Doc, just place me on ignore and take a nap...the markets are closed Tuesday anyways.
I tried posting this earlier but it got deleted. I am simply deciding how many to layer in on the Dec contract of the 31/32 Bull Put Spread for .50 credit(BE 31.50 @ Dec OPEX). Max risk .50/spread, max gain .50/spread. 200 spreads risk 10k(PPS @ or below 31.00 @ Dec OPEX), potential profit 10k(PPS @ or above 32.00 @ Dec OPEX) .
Second, the Bull Call Spread with the same contract month with the 32/33 Calls @ .50 debit or less(BE @ 32.50). You notice that the BE here is 1.00 above the Put Spread...hence the advantage of the credit spread. Max gain and loss is the same as the Put spread. You can pay more for the 31/32 Calls but this reduces gains and increases max loss, while still not reaching as low of a BE as with the Put spread.
I would go easy to see how the Persimmons digest Earnings, and then the election. Should be fun....in kind of a weird way...;-)
I like your spread ideas. The Bull Put seems the winner vs. Bull Call spread.
When you enter a spread like that, do you enter it as a leg in one transaction or two separate trades- one long and one short? Also when you exit the trade in December, do you let the long and short puts simply expire ( if worthless)?
if the PPS is between $31.50-$32 on the Friday before OPEX how do you exit?
How concerned are you about "fiscal cliff" and "Iran" post election, those can really muddy the waters (hope not).
I hope many are listening when I warn that this timing(the run to Dec EX) carries more risk than we have seen in other years. That is why I wanted to err on the side of the lowest BE possible and hence 31.50. Having said that, let me lay out the possible scenarios.
I will first assume the EX falls before the Dec OPEX:
1) If the PPS is @ a PPS that will cost you more than 1.00/spread (gross)to unwind, then hold until the OPEX. The reason...The MM's have the premiums currently set to reflect the EX occurring B4 the OPEX, but they might adjust the premiums up on the higher Delta Puts as they did last Sept, when the EX occurred B4 the Sept OPEX.
The most likely additional amount to unwind would be roughly .25/spread loss, if the PPS falls below 31.00. To avoid this loss, carry through to OPEX, where the maximum loss is a net .50/spread(1.00 gross). That 1.00 is the max loss if carried to OPEX.
2) Cover on the day before EX on all other scenarios...exception...at times, as the PPS climbs higher than your position, you can unwind, for pennies. I would unwind at 5 cents anytime I could going forward toward the EX(giving you a net .45/spread profit).
Second, the EX comes after the OPEX...yipeee!! Let it all expire @ OPEX, with the 5 cent exception rule still in play.
Take the spread position out as "a spread" is my recommendation, especially in these uncertain times. The reason...you can enter one leg and have the PPS go against you quickly before you have the protection of the other leg in place.