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American Capital Agency Corp. Message Board

  • reits_r_us reits_r_us Apr 30, 2011 1:20 AM Flag

    Option opportunities

    Hey Jim, et al option traders,

    What say you about May and June 28 and 29puts. I'm drooling over the May28.'s and June 28's getting down to the teens or single digits for May and 25ish for June...then the spo at 28 returning a 5-6 banger. I think there is a great chance of it all happening of course before May expiration (5/20) and for sure by Jun(6/17). It all depends on this" emergency brake creep". If we can creep to 29.50+ I'm in.

    Throw down 100 bucks for 500, 1000 for 5000......

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    • Hey Rim,

      You and I were on the same MLP "tour" this quarter. I also had Positions in:

      1. CQP: Ouch. Enough said.
      2. ETP: BE (I thought about closing this position out on Friday with an 80% profit, but followed my "plan" and got clobbered by the tax proposal.)
      3. EPD: I made a small profit, but again, I was looking at a 150% profit, but followed my plan, and got caught in a temporary O&G sector downturn, giving up most of my paper gains.
      4. LINE: given LINE's softness above 40, I didn't like the price movement on Friday, and fortunately, closed out my position with a 58% gain, avoiding the bloodbath this week.
      5. EVEP: You didn't trade this one, but it was my favorite this cycle. As a result of EVEP's recently announced holdings in the Utica gas shale, and the ensuing take over rumors, EVEP's price saw oversized appreciation. I hopped on the EVEP "rocket" and closed out my position last week (again, fortunately) when my profit reached $10/share. What a ride.


    • Hey Doc,

      That makes HTS the "Bill Bailey" trade.


    • Won't-you-please-come-home,

      That Agnc, IVR, HTS correlation was a great point. All had spo's around Mar 22nd and Agnc recovers a buck twenty and change, IVR 1.75+, and wait for it.........................HTS 25 cents and change.

      As I have said B4 Molasses in Jan, that's HTS. The only time to play it is about 21-28 days B4 EX otherwise it hibernates the whole cycle.

    • Jim,

      Great point on using metrics for multiple purposes. I occasionally use correlation factor within sectors. Last month found that while IVR was .86 correlated to AGNC (no surprise) HTS was only .64 correlated. Doesnt affect the portfolio correlation much, just interesting.

    • Jim,

      I did mean May.

      On the MLPs, I had positions in CQP, ETP. EPD and LINE. I lost money on CQP as did most of us. However, I got out early on the other three, which happened to be near their peak, and watched with disbelief as they kept tanking. Don't know for sure what is going on with all of them. Been following their boards, but either the lizard is causing problems, the potential tax changes (which would also effect mREITs), or who knows. Not sure anyone over there has a real handle. Hopefully they can recover. Yesterday they started coming back. Hope you have enough time to ride it out. Good luck on that.



    • Hey Best,

      Great answer. Your point that even dilutive SPOs add to the total BV is well taken. This would make almost every SPO positive to total BV, and by providing additional collateral, be positive for borrowing.

      Admittedly, the link that I sent you was fairly fluffy (sorry to insult your intelligence), but the salient take-away was the reference to BV as a company's "liquidation" value. I personally consider P/B as one of several important metrics, but it is important to recognize that different industries have different multiples. As part of my DD, if I see a P/B or a P/E that is out of alignment with industry averages, I try to understand the reason for the disparity.


    • Hey Rim,

      I think you meant "May", but 30.10 sounds good to me.


    • Thomas,

      I don’t know who first said that history doesn’t necessarily repeat itself, but it does rhyme. I first heard it on this board. Kudos to who first posted it.

      One of the things I noticed when I did the above analysis was the difference between the previous high for the Ex-div month and the high in the month prior to Ex-div month was around $.50. Jun high was $28.97 with the Aug high of $28.42, $.55 difference. Sep high was $30.00 and Nov high was $29.48 with a difference of $.52. Dec high was $29.95 and Feb high was $29.55 with a difference of $.40. With a Mar high of $30.67 it would “sound like” the high in Apr would be close to $30.10 which support your analysis.

      I really hope we have to decide whether to sell some options in Apr at $30.10.



    • Didn't the 1Q report go into detail on repayment rate? It got very down-and-dirty into everything else.

    • I think BV is the denominator in the leverage calculation.

      When AGNC gets some cash, they spend it, then take the assets they bought and use those as collateral to borrow cash, which they spend, and use the assets to borrow more cash, etc., etc. until they've done that 7 or 8 or 9 times.

      The total BV is not relevant to AGNC's credit rating, since every tranche of RMBs they buy acts as collateral for a loan to purchase the next tranche.

      Moreover, the ratio of BV to shares out is totally irrelevant to AGNC's credit picture. You can lower BV/share by doing a low-priced SPO, but total BV will still go up, and AGNC will have fresh cash. If you raise the number of shares you're issuing in proportion to the lowering of the price, you can get the same amount of cash, keeping up the same rate of RMB purchasing.

      They go to the market for new cash because they don't want the leverage to get too high. It's that excessive leverage that would hit their credit rating. If they're 8:1 leveraged, they have 8 loans and 9 tranches of RMBs, so they only have 11% margin to work with if for some reason the value of that RMB asset base starts to decline. Making that margin smaller would worry their lenders.

      But that's got nothing to do with total BV or share price.

      As for your link, it looks kind of fluffy. "Multiple studies have shown that price to book value (P/B) is the most effective valuation measure in determining a stock’s performance"? And multiple studies have not. Price/Book is all over the map in public companies. So that statement is a sales pitch.

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