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American Capital Agency Corp. Message Board

  • jtrader64 jtrader64 Dec 13, 2012 2:24 PM Flag

    Put Arb

    Slege wrote: "If the closing price minus the dividend is greater than the strike minus the premium, then the potential exists to make a profit in the week following the xd.
    right now the ask is too high by at least a quarter."

    But the MM's know that MITT goes ex tomorrow and price the dividend in the premium today. That's why you see the ask on the puts too high to make this work.

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    • Actually, I worded that oddly.

      The MM's know that tomorrow MITT will trade without the dividend so they price the drop in the puts.

      It is actually opposite of what you see going on with the December puts for AGNC. AGNC is down today but so are the December puts. The reason is that because we haven't seen the dividend announcement yet, the MM's have to mark down the December puts because at OPEX they now expect the dividend to still be in the price as AGNC's ex is looking like it will be after OPEX.

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