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American Capital Agency Corp. Message Board

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  • reits_r_us reits_r_us Dec 4, 2012 11:34 AM Flag

    The real options trade for AGNC

    Hi AL,

    If you read the last sentence from IWB's post you will see the whole point of his message were the key words "right now" (as in Dec 3rd).

    ""That is the best risk/reward model you can get in AGNC options right now""

    Back on Nov 13th, the PPS was two dollars less than on Dec 3rd. Shoot, you could have picked up 100 contracts of Short Dec31/28Puts for 2.00 credit and already be up 1.00 today. Your BE was 30.00 on that trade, risk 1.00, and the PPS only has to go to 31.00 for the entire 2.00 credit(100 contracts = $20,000 profit) by OPEX.

    That was a deal! We end up at 31.00 @ EX and you are in a much worse risk/reward with your BE of 31.00. That won't happen, so nice get on the 30's. There were just much better risk/reward trades at that time(Nov 13th).

    DocReits

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    • He's still wrong and, if you side with his view, you're wrong, too (heresy, I know, but that's my stance and I'm sticking to it). You can buy the 13Jan$31 Calls right now (well, the market is closed for today) for $1.10 per share. That contract stands to at least double during the dividend run-up; it beats his 2.4:5.6 model every day in the week and twice on Sunday.

      Of course, I know that you know that and were just being a nit-picker in your reply to me.

      Hasta La Viesta, Baby.

      Sentiment: Buy

      • 1 Reply to alw59saw
      • And if you also sell the 13Jan$31 Put, you can collect 1.36. You'll have 26 cents in your pocket, and a delta of almost exactly 1.0, and an infinite ROI if it's up by the end of the December div run.

        Sure, your risk is now $31-1.36+1.10=$30.76, but that'd be smaller than just buying the stock at $31.46.

        Lots and lots of ways to make money when you know what's going to happen and the market doesn't.

    • Correction:

      Actually the BE on that 31/28 was 29.00, not 30.00, which is even better....

      DocReits

 
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