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American Capital Agency Corp. Message Board

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  • only_one_cannoli only_one_cannoli Nov 23, 2012 2:13 AM Flag

    I'm in AGNC with 4,914 Call Options...let's Rock n Roll : )


    Happy Thanksgiving, all and best of luck to you, xion and fellow longs on this div run.
    I'm looking forward to reading your book when all's done.

    Xion, I wouldn't want to say anything to throw you off your game (hey, to me, it's a profitable looking trade) am just curious about your choice of months though. If you don't mind my asking, why the Decembers instead of Jan?

    In terms of risk and unlikely worst case scenarios ... suppose there's no run-up in December and AGNC stock is still here at @ 31.42 a day before exdiv. Then looking at 'fair values' ...

    DEC 31 calls would be worth $.45 for a 59% loss
    JAN 31 calls would be worth $1.12 for a 8.2% loss

    Granted, you can buy a little more DEC 31s versus JAN 31s (10.9% more). Gains for both are about the same, JAN 31s = 83.6% gain versus 81.8% for DECs

    DEC 31s
    29 days to exp (as of tNOV 22) agnc DEC 31 strike calls are worth $1.10 when pps @ 31.42 (iv @ 25.33)
    1 day to exp (as of NOV 22) agnc DEC 31 strike calls are worth $2.00 when pps @ 33.00 (iv @ 25.33)
    = 81.8% gain

    JAN 31s

    57 days to exp (as of NOV 22) agnc JAN 31 strike calls are worth $1.22 when pps @ 31.42 (iv @ 26.17)
    27 days to exp (as of NOV 22) agnc JAN 31 strike calls are worth $2.24 when pps @ 33 (iv @ 26.17)
    = 83.6% gain

    Just curious ... not trying to bother the pitcher who's throwing a no-hitter in the 8th inning ... I have a mere 200 Jan 32s @ .80 avg purchase price and hoping for a decent run-up. I'll go back to selling my peanuts now.

    Good luck,
    Cheers :D

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    • The reason I picked December calls is the same reason why people buy tons of cheap beer...more bang for the buck and increased volatility. On the downside, I know it's more risky and the time on those calls is running out. I do not recommend that others do what I did, for their own safety. I guess another reason I did it is because I have been poor all of my life, I don't want to be poor anymore.

      Sentiment: Strong Buy

    • Hi Only,

      I think Dec is the better play for what X desires which is greater leverage. Secondly, AGNC has been moving their EX dates forward, meaning that , I believe, the EX will be @ the Dec OPEX or one to two trading days earlier, so the run should be over , or close, by Dec OPEX.

      You left out a very important component in your cf of the Dec to the Jan contracts. The # of contracts X can purchase given a limited amount of money(in this case almost 500k). Watch:

      When X bought the Dec 31s ,trading for 1.00 avg, the Jan 31s were trading for 1.14. Lets say he had 400k for that trade. He would be able to get 4,000 contracts(ignoring commission) in Dec and 3,508 contracts of the Jan.

      PPS goes to 33.00 @ EX and the pot doubles on the Decs for 400k profit and there is still .20 bid left on the Jans(2.20 bid) which gives you 2.20 x 3508 or 372k profit.(28k difference). (I got these values looking back @ Oct 2012 OPEX which was 33.00 PPS close, and used the 31.00 Strikes for Oct and Nov as proxy).

      Furthermore suppose we go to 34+(my thought) and the EX is B4 the OPEX(my thought), and X is still holding. Then the difference between the Jan contract and the Dec contract is only 7 cents(bid). Now he makes( at 34), 792,000 profit , whereas the Jan makes 669,940 profit , or a 122,060 difference.

      The benefit, of course of the Jan over the Dec is if we don't make BE(32) by Dec OPEX or EX.



18.58+0.15(+0.81%)May 5 4:00 PMEDT