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American Capital Agency Corp. Message Board

  • instantwinbutton instantwinbutton Dec 3, 2012 6:39 PM Flag

    The real options trade for AGNC

    SELL the $30 dec puts, BUY the $29 dec puts. Equal quantities. I have a net credit of 0.30 on 80 contracts each side. Max loss is $5600, max profit should we be above $30 at expiration is $2400. That is the best risk/reward model you can get in AGNC options right now.

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    • ---------------
      SELL the $30 dec puts, BUY the $29 dec puts. Equal quantities. I have a net credit of 0.30 on 80 contracts each side. Max loss is $5600, max profit should we be above $30 at expiration is $2400. That is the best risk/reward model you can get in AGNC options right now.

      If you can still get the credit of .30

      I didn't look today, but will check again tomorrow.

      I had a chance to do this but didn't pull the trigger.

    • Well done IWB,

      I had those also last month at .45 credit. They are indeed the "safest" spreads for BE, out there, IMO. I saw them as too safe for my thoughts on AGNC's run and a waste of greater opportunity. Waste is maybe too strong of a word. With Short options there is always a risk in being assigned , no matter the strike. I will only allow myself to be assigned as many contracts as I can pay for. So, I need to be frugal in the allocation of contracts.

      Your 80 contracts , if assigned, will need $240,000 to purchase or about $120,000 in cash. From previous posts, I know that is no problem for you, but others are reading.

      Getting back to your "risk/reward" statement, I obviously disagree since I rolled out of that position of yours to avail myself of the opportunity for a higher run in PPS which I am expecting for AGNC. consevatively, the 33/30, for a 2.10 credit gives you a BE of 30.90, which is 1.20 higher than your BE, but it gives you 7x the reward, if we hit 33 by EX.

      I used to trade the OTM spreads, which I agree, have a lower BE, and therefore less risk of not reaching your BE, but they place you actually more vulnerable on risk/reward(the ratio, which also has the reward side). The reason, as you already demonstrated, is if we have a cataclysmic event and end up at 29 or less at OPEX you lose over three times your credit. So you are risking over 3x your reward. If, on my suggested trade we end up at 30 or less, my trade risks less that .5x my credit. That is a 6x risk difference between the two trades, on loss of capital on cataclysmic event.

      I was trading thousands of contracts and just came up nervous a few times thinking I am SOL if we go down much further by OPEX for this .20-.30 credit I was receiving.

      So I understand your position, since I have been trading that way for the last couple of years. I recently changed and will let you know, by the 21st, if it paid off....this time....;-)

      Good Luck to all longs,


      Sentiment: Strong Buy

    • Disagree. The BEST risk/reward model is to buy 13Jan$30 (or $31) Call options for $1.00 (which I did on 11/13 --- can't get that $1.00 price now). The risk is $10,000 for 100 contracts; the reward will likely be a profit of $$23,000 (or more) with just a modest increase in pps during the dividend run-up this month. That's a 2.3:1 gain vs. your 2.4:5.6 loss model.

      Sentiment: Buy

      • 2 Replies to alw59saw
      • If you are going to talk about Nov 13th, I bought the Jan 29s for 0.80 on that date. Anyhow, I would say the 32/31 put spread is a better deal. I bought them for 0.75 ytd, and you can probably get it for that price tomorrow if this price holds (or falls)

      • 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).


    • This morning 32 puts were 1.72 and 29 were 26 cents and thats my entry point. You are not happy with $13.700.00 profit?

      • 2 Replies to ovicp
      • Hey Doc,
        You are taking wost case scenario and I am taking the best, because I thing that our beloved AGNC will be over 32 by OPEX.

      • The other elephant in the room for these short Puts is whether OPEX will be before or after EX. If after, and you are going to liquidate before the EX, then you can add 1.25 on top of the premium of all Puts ATM or greater in value. Add smaller descending amounts for all OTM Puts.

        So if you short a 33 Put and the EX is on Dec 20th, and the PPS is at 33.00 when you cover on the 19th, then that Dec33Put is still @ 1.25 and change. If the EX is on the 28th, and you liquidate on the 20th, then, if the PPS is at 33.00 when you liquidate, the Dec33Put will be approx .33.

        Big difference, so I am hoping for an EX post OPEX, for many, many reasons...;-)


        Sentiment: Strong Buy

    • I love this message board. It's always active and on the fun side. CYS's board is completely empty it feels like.

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