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American Capital Agency Corp. Message Board

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  • reits_r_us reits_r_us Nov 19, 2012 10:41 PM Flag

    Already Put My Xmas Dollarmite Up


    This looks like Déjà Vu all over again. You just told us about bailing for a loss on a similar position upon the slide last week. Why not consider wrapping this Christmas Dollarmite in Pampers so if you S$$T again, upon another #$%$ crash, you won't make a mess....sorry.

    Here is how. Just add a long leg buffer. You can still get the Dec 31/30 Spread for .50 credit. So multiply your present Short position by 3, and you retain your 1.50 credit, and secure your position down to 30.50(BE), and have a maximum .50/spread loss, @ 30.00 or lower.

    Granted your BE with your current position( on the Puts) is 31.00 - 1.44 or 29.56, but you covered last time at about the same PPS, right? This position, I am describing, saves you being in that uncertain position, wondering if we'll go to 15 and stay there.

    So just grab as many Long legs(30's) as you have Short Puts, and then grab additional spreads until you have the same credit, as you now have. For best results you need to hold the spread to either EX or OPEX.

    Just an idea.....


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    • What would he need to do to protect against a drop to slightly above $28?

      • 1 Reply to alw59saw
      • AL, is that a trick question?.....;-). I will assume not. Since his 1.44 credit subtracted from his 31 Short Put ends up at 29.56....that is his BE. He can buy a 28 Long Put, for .30, which will prevent further loss below 28, but that reduces his credit to 1.14(1.44-.30), and he therefore raises his BE to 29.86. There is no way(I can think of) to lower his BE to "slightly above 28", in his current position.

        Starting fresh, you can Short the Dec29Put and Long the Dec28Put for a .20 credit for a 28.80 BE. Options 101....less return for less risk and vice versa.


    • yourbestfriendintheworld yourbestfriendintheworld Nov 20, 2012 11:09 AM Flag

      I've got a little more confidence in the future. The post-election panic is out of play, and chunks of the fiscal cliff are having stair-steps cut into them. So dips like today I read as noise, not the start of secular damage. The remainder of my margin headroom is for similar plays in MTGE and TWO, and piling up risk elements will make it harder to react when the exdiv and opex lie close together.

20.26+0.08(+0.40%)Oct 26 4:00 PMEDT