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American Capital Agency Corp. Message Board

  • shortputs shortputs Nov 24, 2012 12:19 PM Flag

    Short Puts Still on Sale

    Everyone stuffed? Let's talk about AGNC. Alka Seltzer ....;-)

    31/30 Short Put Spread for .45 credit gives you a BE of 30.55, max loss of .55 @ 30 or less by Dec OPEX. Max profit of .45/spread, @ 31 or higher by OPEX. 200 contracts net a 9,000 profit by Dec OPEX, which is the end of the world 12/21/2012. I have hundreds of these already but want to add before the PPS gets away on us.

    Remember, if the PPS spikes down you can be assigned("Put") the shares(20,000 in my example). Sorry I can't resist. What are the odds of AGNC not being above 30.55@ OPEX?



    Sentiment: Strong Buy

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    • Just shorted some more Put Spreads. Dec35/30 for 4.10. 30.90 BE. 4.10 profit at 35 @ OPEX. Find Calls with that profile. They ain't there. Short Puts are King!


    • Thank you Doc,

      Great explanation, all makes sense.. Always learning from you :)

      Good Luck!

    • nick_brody Nov 28, 2012 10:47 AM Flag

      Sold Dec 30's this AM at 0.73

    • Bad day for the market Doc and AGNC is holding! :)

      Sentiment: Strong Buy

    • Woops! Math was a little off - thanks for the correction Doc.

      What I like about the trade is the loss/profit ratio. Plus the $4.50 profit in either scenario's not bad. ;)

    • Hey Doc,

      I agree with you, very small chance AGNC is not above $30.50 at Opex.

      But why not go after the $37 Puts? Premium $6.50. You collect $6.50 and still have the same break even.

      Only threat would be a flash crash maybe in early December? But if you get the shares put to you at $30 you should still be able to sell for approx $35 at Opex giving you a $5 profit by Opex.

      Math looks like this:

      Scenario 1:

      Collect $6.50 per share, PPS is $35 at Opex and the Puts aren't worth exercising and you keep the $6.50. Nice hit!

      Scenario 2:

      Collect $6.50. Shares are Put to you at say $30. Sell at $35 at Opex. You make $5 plus $1.50 from the Premium. Still $6.50 Profit!

      Happy Thanksgiving!


      Sentiment: Strong Buy

      • 2 Replies to roym717
      • Your concept is great Roy, but the math is a little off. Here are some corrections:

        Scenario 1) PPS 35.00 @ OPEX. You owe the buyer of the 37 Put 2 bucks so your profit is 4.50.

        Scenario 2) Common error is that the shares are Put to you at the strike price of 37.00 not the current PPS of 30.00. So you are long the shares @ 37.00 and if the PPS goes back to 35.00 you lost 2.00/share, but you get to keep the 6.50 premium so your profit is 4.50 again. Not bad!

        If the PPS stays @ 30.00 you are down 7.00/share and up 6.50 for a .50 loss, still good odds on this trade. I placed my GTC order a couple of minutes ago.



        Sentiment: Strong Buy

      • Excellent points Roy and a post Happy Thanksgiving to you! I did that trade last month or so with the MLP flop and got ETP 50/40 Short Put Spread for about an 8.00 spread( I think)and made about 3.00 on the trade. It was one of the few winners during that bleak time...;-(

        I was just thinking about that exact trade you mentioned this past week. I like to get a long leg and keep the spread to around a 60/20 potential profit/loss in the best/worst scenario. So if we went to 37 you get to keep 3x of what you would lose in the worse case...

        So I like the 37/29 Short Put spread for 6.01 or better. Worse case is 30.99 or lower for a 2.00 loss. Best case is 37.00 or better for a 6.01 profit or 3x the loss potential.

        The 37/29 Short Put spread is sweet, IMO, as you would get a profit of 3.00 @ 34.00 PPS @ OPEX. I am expecting 34.00 as a best guess average of where we will be @ EX or OPEX. I tried all combinations to get the most profit @ 34.00 PPS and this is the best spread I could find.

        My order is placed. I hope I don't get a margin call with all of these short positions...;-)


        Disclaimer: Whenever you enter a short Put position you can be Put the shares at your strike price anytime during the contract(even out of the money short options). So be prepared in the event this happens...Good luck!!

        Sentiment: Strong Buy

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