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American Capital Agency Corp. Message Board

  • lornekenney lornekenney Mar 20, 2013 2:09 PM Flag

    SPO, Flash crashes?

    I think I'm developing an understanding of the AGNC cycle, at least in part.
    It holds basically steady and inches upwards, except when two things happen (other than we reach and pass an EX date).
    The first is the announcement of an SPO.
    The second is a random flash crash, like the ones on November 14 and December 31st.
    Does anyone have a sense of when there might be an SPO?
    Does anyone have any insight into the flash crashes?

    Sentiment: Buy

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    • Thanks

      I currently own some AGNC shares that I am content to let sit there, earn the monthly dividend and ride up and down.

      I am also thinking of taking an option position. Basically, I have a stink bid in for some call options that is unlikely to get filled unless there is a "flash crash" or a sudden drop in the price for some other reason. However, I see the stock opened up this morning. So it probably won't be today.

      If I have been understanding Doc correctly, I have also been expecting that the PPS might take a dip down before beginning its upward march as the next EX date approaches, thinking that there might be an opportunity to purchase call options somewhere near the low point.
      The other thought I have is that it might be wise to have protective puts in case there is a dip down. Any views on that?

      I tried selling covered calls a few months ago and got singed. So I doubt I'll be trying that again any time soon.

      What do others think?

      I appreciate that this discussion board is open to all but, as I look at the volume of AGNC shares traded on a daily basis, can we assume that discussants and watchers represent a small subset of those who trade it? I know there is no way of knowing for sure or for controlling who checks out this board but I'd be interested in people's impressions. In other words, can we assume that nothing said here is likely to move the stock price to any degree?

    • yourbestfriendintheworld yourbestfriendintheworld Mar 20, 2013 3:19 PM Flag

      SPOs are basically unpredictable, but when the spreads are profitable the managers like to do them on average every three months. so it pays to be looking out for one 2 months after the last one, and we get antsy when it goes into the start of the 4th month. management isn't going to do anything predictable, because then they would have a lousy negotiating position when discussing price with the underwriters.

      The SPO happens when the company has a use for the cash, has a lack of cash, and gets a decent price from the underwriters. The SPO won't happen if the price the underwriters are willing to offer is below the BV. The price the underwriters offer will always be below the market price, because the underwriters have to re-sell the shares to the brokers, who have to sell them to their own clients, who won't buy unless they can get an immediate profit on the market even after the glut of shares causes the price to drop. So the underwriters' offer will be several percent below the prevailing market price, and won't be finalized until the SPO is actually announced. People like to talk about trigger prices relative to BV, but they're imagining things. There's no magic price level other than "accretive".

      Flash crashes are impossible to predict. They're due to panic-selling by machinery that only "panics" because it's misprogrammed. But they're lovely when they happen, _if_ you can discern them from real crashes, _and_ you can find money to put into the recovery.

    • there also seems to be some big traders that use AGNC as a piggy bank. there are times when some really good news elsewhere kind of slams REIT stocks. and everybody goes, #$%$ just happened?" eventually that money makes its way back to AGNC as the hype regarding wwhatever else it was wears off.

      also remember that the Federal Reserve is now sitting on a quarter of a $trillion in agency MBS. by now they probably have the most of any organization. you should really think about what the Fed might do, and what you will do in response. if what you do is going to be nothing at all, at least you have thought about it.

      • 1 Reply to mrwizard9090
      • Thanks mrwizard9090 That is useful information and those are excellent points.
        I suppose one thing one could do is have a stop loss order in place if one is long the stock.
        The other thing might be to purchase options - some ATM calls and some ATM puts at the same strike/expiry. If there is a sudden significant jolt I think the way it works is that one of them will go up by more than the other one goes down.

        Is there a significant risk of the Fed doing something large and sudden? Sorry to be so uninformed but what are agency MBS's?

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