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American Capital Agency Corp. Message Board

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  • reits_r_us reits_r_us Jan 9, 2013 9:51 PM Flag

    Hey Ephort!!


    "Why would the Jun 15 be called at March opex?"

    Because the deep ITM Calls track the PPS dollar per dollar(Theta = zero). IOW, the current Jun15Call traded @ 10.10 last, today.The PPS is 25.11, so the option is at Par.

    At Mar EX, it will also be at Par. The long holder of the option will exercise(99%) to receive the dividend. If he does his shares are worth 90 cents less, but he has received 90 cents in the dividend to remain neutral.

    If he does not exercise and instead keeps the Call, his Call will be worth 90 cents less, on the EX date and he will be down 90 cents compared to having received the dividend. This is why I added the Long share position in this hypothetical example. If you did not buy the shares along with the option spread, that exercise @ Mar EX, would leave you down 90 cents/share and short the shares from 15.00.

    Make sense?


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    • When the short calls are assigned in March and the shares are called away, you are left with $11 credit and the short puts. The net value of the position will go up and down with the market, and will be $11 minus the value of the puts. From March until June, you are no longer protected down to 14 but only to 24. Getting an additional dividend will be nice, but you will be wide open to downward risk, no?

19.70-0.11(-0.56%)Sep 23 4:00 PMEDT