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American Capital Agency Corp. Message Board

  • l3l_00lvl l3l_00lvl Jun 14, 2012 9:32 AM Flag

    Thoughts on playing Divy / SPO

    Just thought I'd share an idea I had for the upcoming divy / assumed SPO. I've paid attention to the past couple of exdivys and it seems to me that AGNC has a nice intraday bounce before the usual 2-3 day sell off. I, like many others, believe an SPO is imminent especially at these prices. But, if I'm not mistaken, history has shown that the SPO is announced mostly AH.

    Anyways so the thought is hold through the dividend and collect, then try to time the intraday bounce only to sell off my shares and wait for the SPO to buy back in. Any thoughts/comments?

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    • Book is $ above book add $0.25 gives $29.31 then subtract 5.6% fees gives a SPO price at $29.31/.9434 is SPO=$31.06 AGNC is at $32.00 so the price will drop by about -1.00 discount due to the SPO.

    • What are the odds of an SPO?

      Is this complete supposition on investors here or has there been some discussion of this by AGNC or something in the news?


      • 1 Reply to little2late0
      • Topic was intended to be an alternate way to play the market instead of BATESAT + whatever this quarter while taking into consideration the ( in my opinion) likely nature of an SPO.

        What are the odds, who knows...but the general consensus is that there will be one. AGNC is at/near 52 week highs so if they think there are attractive MBS out there (which we already know to be the case because their daughter company already had an SPO) then this is a great opportunity for them to further increase book value.

    • Just thought I'd keep you guys updated on how this worked.

      I captured the divy and then made an additional 29 cents in stock appreciation this premarket. That gives me a total of 33.90 in share price compared to a 33.95 if I sold at the top before ex date.

      Anyways, I think this is a viable option to anyone who feels they missed the pre ex-date high on the divvy run.

    • Hey Brian,

      "Anyways so the thought is hold through the dividend and collect, then try to time the intraday bounce only to sell off my shares and wait for the SPO to buy back in. Any thoughts/comments?"

      I ran the opening, high, low, and closing prices for the last 4 X-d. dates relative to the previous days' closing prices. Were you able to nail the high on each X-d. date, you would have exceeded the dividend in each case. However, were you to have sold at the low for each day, you would have made less than the dividend in 3 out of 4 cases. This makes the timing slightly problematic. I noted on the highs that the average increase over the dividend equals .44, with the average decrease for the lows equaling .10. This info is noteworthy for me as I tend to play the dividend on the way up, recognizing that the high before X-d. is not always reached on the day before X-d (Over the last 9 Qs, the high was reached 4 times on the day before the X-d., 2 times on 3 days before the X-d., 1 time on 4 days before the X-d., 1 time on 5 days before the X-d., and 1 time on 8 days before the X-d.).

      Given that the average delta between the high and the low on X-d. date is a positive .34 (.44-.10), depending on the status of the dividend run ( particularly if momentum is driving the stock price to the end of the dividend run), to your point, it may be more profitable to hold until X-d. and try to time the intraday bounce. Regardless, with an SPO in the wings, you want to be out prior to the end of the X-d. date.

      Definitely something to think about.


    • You are right about it being in AH, only because it could add value to the company with the minor gains during mid day trading.

      What you need to be concerned about is if they SPO on a down day after the Div. Then you can reinvest the Div into the SPO, but are locked into a trade till next Ex.

      Just something to think about. Depending on your strategy this could work out perfect for you, or make you have to ride a long position when you only wanted to ride the Div.

    • So the company has strongest motivation to keep PPS high just before going into ex div and SPO in order to receive max above book. Seems they may have a hand in today's action as most investors seemingly would shun this high of a premium over book.

    • yourbestfriendintheworld yourbestfriendintheworld Jun 14, 2012 11:03 AM Flag

      " if PPS remains this high it would increase the odds of SPO "

      it would increase the issuer's desire for a SPO, but the SPO has to be bought by the underwriters and they have to be able to sell it immediately to brokers' clients and they will subscribe only if they think they can get a good price in the market

      so while the issuer wants to sell, the people it's selling to may not see the value proposition

      the div will of course take a dollar off the top, and the negotiations will already be ongoing and the company will offer a 5% or so discount, so a SPO price around 31 is the company's starting point. that's almost $2 over BV, so the underwriters will see lots of room to ask for more of a discount. their clients will be lowballing as well.

      and we will of course be agitating for a price in the 29's so we can get another running start. but it probably won't happen for us. likely scenario: it'll float at 30-31 on Wednesday and the market will be hungry for it so we'll all end up paying 31+, possibly 31.50 due to the time and recent behavior.

      now, the company knows this, too. so the underwriters won't get away with lowballing. so make the likely spo price 30.50-31, with the tails of the probability curve sticking out to either side.

    • What are you going to do if the SPO is announced on the ex date?

      No one knows when the SPO will come, or if at all. You need to think of all possibilities, and be ready to react.

19.385-0.395(-2.00%)11:58 AMEDT