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American Capital Agency Corp. Message Board

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  • igsteri igsteri Oct 26, 2012 1:15 PM Flag

    OT: EPD

    Sledge,
    Thank you for your thoughts.
    I'm willing to hold through EX, I like the "reach-arround". So, is it smart to buy some OTM protective puts in case the slide continues? if so, how do OTM puts get adjusted at EX?

    Thanks,
    Igster

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    • I have gained and lost on otm puts for an xd play. It is all in the pricing. If the price of the put at one strike lower[for epd that is 52.50] is less than the dividend amount, then probability is in your favor.

      Right now the 52.50 put is about .80. If epd stays at 53.20 to the close then it will open at about 52.60. , so you get plunked right at the money for no intrinsic value. In spring I did this with LINE for a doubler. I just looked at the daily chart and it appears the market makers want this to land right on a strike.

      The question then, is .80 a good price for an at the money put with three weeks to opex? What you have then, if you keep your 52.50 calls is a straddle to opex. This is why I say the calls will not fall in price following xd, unless price continues down. The price would have to move by 1.50 approx to break even in any direction. This math is a very rough estimate.

      Being that earnings are less than a week away, a move in price is possible. In this bear sentiment market.... man, it could temper what should be a two point move after favorable earnings into a .7 move. Thrilling, isn't it?
      If you do get puts, go to a more distant month perhaps.

 
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