OK! The Nov slump is behind us. Much of the initial shock of mReits hitting the crapper in the event of no resolution over the FC has been priced in, and we have been inching forward out of the trenches after the fuselage of the lame press bombardment seizing every sensational opportunity to warn(read scare) us about the end of the world occurring as a result of the same...Lions and Tigers and "BEARS" ...Oh My!
But, as always , AGNC will march on and arrive at 34.00+ before its EX date at the end of THIS month, IMO. So how are we going to take advantage of this very likely outcome? We can hide under our beds and wait it out, which is safe, I agree, but it causes one to miss out on this most excellent and likely opportunity. How many times has AGNC been this far under book value, this close to EX?Correct me if I am wrong, but I believe the answer is zero.
Here is an interesting lining up of events, with the caveat of the wolf lurking in the forest(FC). Really low PPS valuation of AGNC and the monthly run to EX, hmmmm.....
Again how do we take advantage?
The safest play I still believe is the spread. You can do this with Calls on the 31/32 Bull Call Spread for about 50 cents. That places your BE at 31.50 and gives you 50 cents profit if OPEX is B4 EX, and PPS is at 32.00 or better.
The better way to play this is to do a long modified butterfly with Puts( a combination) Watch:
Long the Dec 40Put @ 9.50. Short the Dec34Put for 3.50 and long the Dec30Put for .50 in a 1/2/1 ratio for a 3.00 debit. BE at 31.00 and 37.00. Max loss at 40.00 or higher(3.00). Lower end maximum loss 1.00 @ 30.00 or lower. Maximum profit @ 34.00 for 3.00. This works best if EX is post OPEX, but it also works reversed(EX pre OPEX) as the long 40 Put retains value.
Your thoughts? Good trading! Exciting times...let's make some money!!
Sentiment: Strong Buy
Hi Doc and AGNC members-
I'm not a sophisticated investor just holding some Jan $31 and $32 Calls and hopefully that will be enough to make some money, even bigger money If the goons can eliminate the uncertainty. Oh yea Geitner will be on Meet the Press tonight, this may have an affect on Monday's opener. Hey does anyone have an opinion on WMC? I've been layering in this one for the last 4 weeks, ouch, the Calls are traded thinly with wide spreads but my gut says big run-up with divi increase potential or am I just smoking crack.
There is nothing but good news from the WMC camp, from TA to their fundamentals(among the lowest CPR of all mReits paying over 14%). I believe we will see spo offer price(22.50) by EX or better. I am with you and was down 40k on the swoon. Still down but only by about 8K(beats 40K). If I can make BE by EX I will be happy...lose some big, lose some small...,keep trading, with no more than 5% per trade, and trade another day....;-)
Sentiment: Strong Buy
Or, you could just buy the 13Jan$30 or $31 Call options. If, as predicted, the price of AGNC rises to $33-$34 by XD date, one makes the greatest % gain safely for the least amount risked, by selling the Calls a day or 3 before XD date.
That doesn't take a lot of investing experience or knowledge to profit from this move. You just have to believe --- it's CHRISTMAS!
Thanks for continuing to share your short put wisdom, it’s very helpful. I’m thinking of getting out of some of my Jan 32 Calls (cost = .80), yuck, I got in too early as well, and dabbling with some short puts. But I’d like to start with some “simple” Bull Put Spreads before I graduate to something like that Butterfly.
Of course, I’m aware this is gambling and very risky. All trade decisions are mine, no one else to blame. So...
I could use some help from the message board double checking my math. For the 30/35 Bull Put Spread I used some Fair value’ calculations from CBOE’s calculator, I know actual prices will differ next week, I’m more interested in checking that I understand the calculations involved.
Assuming I’m able to enter a 30 /35 Put Spread at the following prices…
Long Dec 30 Puts @ .46 and Short Dec 35 Puts @ 4.70 credit = $4.24 net credit and $.76 risked per contract
Then @ OPEX …
@ $31pps, profit = $.24 or +31.6%
B/E is @30.76
@ 30pps, loss is 100% (-.76)
Thank you, 'Forward!', as they say
My numbers are a little different than yours. I see the bid on the Dec35Puts@ 4.45 and ask on the Dec30Puts@ .55, making the credit @ 3.90 on the spread bid. Risk 1.10, BE see below. Not optimal at this time, IMO.
The spreads have widened on most of the Puts and I am not excited about any at this moment. Things will change on Monday, maybe better or worse. Here is the main deal...if you use the option calculator( I use the one @ ivolatility) you can change the day of the dividend(EX) and the current days until OPEX.
This allows you the opportunity to calculate your BE's on the day B4 EX, based on whether the EX occurs B4 or after OPEX...very important. I recalculated my 37/30's and 35/30's based on both of these possibilities. If EX is B4 OPEX my BE averages 32.30. If EX is post OPEX my BE averages 31.15( basically close to the difference of the 1.25 dividend), which makes sense.
I started out shorting OTM Put spreads when I began shorting Puts and I would recommend that course of attack, starting out. If we do have a pull back next week I would look at either the 31/30 or the 30/29 Short Put spread, for a first time Put Spread. Right now the 31/30 is at .45, and the 30/29 @ .22. I got the 31/30 spread earlier last month for .64 and the 30/29 for .45. Those were good credits. I just rolled the dice by rolling them to these ITM spreads, which will indeed pay much more if we hit 34 before EX( my thought), and especially will pay off if EX is post OPEX(50/50 chance). Neither of those might happen, and then my birthday(Dec 21st, OPEX) won't be a Happy but a sad Birthday.....;-(
Keep in mind that my current ITM Put Spread BE's are higher than the OTM spreads, so that is the risk, + there is more to lose on these ITM spreads cf to the tighter OTM spreads. Risk/Reward.
Disclaimer: Please don't risk more than you can lose and still sleep. My recommendation is to never risk more than 5% of your trading capital on any trade. Finally, on short Put options, especially ITM(but also OTM) you can be assigned at any time before OPEX and will need to buy the corresponding shares at the strike price(I know you understand these things Only, but I am saying these things for the benefit of other readers).
Other ideas Only? I keep late hours as I am an insomniac...;-)
Sentiment: Strong Buy
I hope you are correct because I am getting tired of watching the agency mreits tread water after such a brutal decline. The non-agency mreits had a great week though and hopefully they keep it up in December.
At some point these things have to trade to book value plus. I can see the current price/book if they were not paying dividends and their book values were threatened but that is FAR from the current status. GLTA this month.
I think we still have some weakness ahead of us till ~ the 8th. I hope I am wrong as a decent chunk of my calls need 32.10 to BE and would like that comfort factor,
It appears you think that the doom and gloom artificially pushed PPS down and that will help springboard us back- again I hope so. last couple of Dec runs have been whimpers