I understand what you're saying, but I still don't see how it can be better to hold through the dividend. The only possible reason I can think of would be if, instead of holding, it would _cost_ you more to sell the calls on EX-1 and then repurchase them on EX. The bid/ask spread (or what you can get for the sell/buy) would have to be huge.
Have you seen that? Where it's cheaper to hold the calls through EX rather than sell-then-repurchase?
I hope I don't come across as challenging you to defend your actions, because I think you should definitely do what you're comfortable doing. I just don't see how it would help me to switch to that strategy, when I can buy significantly cheaper June calls vs Dec ($0.80 vs $1.25) and get pretty much the same amount of money from them as I would selling the Dec calls before June EX. If I recall correctly, you can't get much extrinsic out of any of the calls as we approach June EX, regardless if they are Jun or Dec. The extrinsic disappears into the mist. Thus the Jun22.50 calls will be as valuable as the Dec22.50.
Maybe I'll simulate it and see what happens.
Thanks for the feedback. I'll take a look at the Roy Battie strategies and see if it changes my understanding.
I'm confused. The only reason to buy calls further out than June (or July if you think MTGE will be late with the dividend) is if you're going to hold them through the dividend, which doesn't make any sense to me. You don't get the dividend if you hold through it. I understand selling puts that far out since they've got the premium, but not buying calls. All you're doing is paying more for the time value which doesn't do you any good when you sell them on the June EX-1.
Can you explain why you'd do this? I'm relatively new, so it's entirely possible I could be missing something.
I'd like to get some thoughts on the chances of AGNC pulling an SPO before ExDiv. I put the probability extremely low for these reasons:
They are not much above last reported BV (28.93).
I'm guessing present-day BV is low-mid 30s. If they've recovered 1/2 of the drop from Q4 to Q1, they'd be at 30.29. To offer they'd want to be, say, at least 3% above BV, so that's 31.20 at a minimum.
I doubt they'll trigger an SPO with it not closing before the announce the dividend (expect around 6/11), so the latest they'd trigger would be the beginning of the first week of June. That's 2 weeks for the share price to rise 2.22 from today's close.
If they want to keep the dividend the same (which they _should_ if at all possible), they won't increase the number of shares they have to pay that dividend to, especially since the UTI is down to 1.08/share from 2.21.
Dropping the dividend would be the worst thing I can see them doing. With a big dividend they can get a share price decently above BV and get back to SPOs. If they drop the div, it's going to be a lot harder to get that premium over book. Of course, last time they dropped the dividend the share price skyrocketed, so maybe we'll be back to crazy land.
All that said, I've chosen to go deep into MTGE since it's definitely below book and, from that aspect, less likely to pull the trigger.
Any thoughts? I'm especially interested in counterarguments for why AGNC (or MTGE) might trigger an SPO before ExDiv.
That's why I exited completely yesterday. Thanks for the heads up a few days ago on their low-coupon status being similar to AGNC and thus open to the same BV drop. I don't remember if you posted that on this board or the MTGE one, but that was very helpful insight.
Are you saying you have an open order to sell all 40 contracts at 4.40, and only 23 of them sold even though your price is $0.06 below intrinsic? Can't say I've seen that yet, but I'm not as experienced as a lot of others here.
This can be done as well. Just be aware that your broker may charge extra for having them assist you in the trade. Check with them to see what the fees are (if any) for doing it this way.
Errr, #2 should say:
Put in a sell order at the closest increment above the intrinsic and wait for the stock price to rise enough to make the option INT value rise above your bid.
So with the options you presently have, you can either:
1. Put in a sell order at the closest increment below the intrinsic (it should sell immediately)
2. Put in a sell order at the closest increment above the intrinsic and wait for the stock price to rise enough to make the options ITM (if they don't sell before that point, which they might)
3. Put in a spread order where you sell your options and buy some OTM options for what amounts to a few cents. Doing it as a spread allows you to use $0.01 increments and not have to sell on the $0.10s.
My guess is that you have either the May or June 22.5s, right? I'd suggest a limit order at $4.00, because it's not unlikely that UAN will go above $26.50 before the end of the day at some point.
I've got May25s I picked up at the open this morning for $1.00, so I'm a happy camper right now.
Ahh, I think I see. By offsetting the $ paid for the bought calls with $ received from the sold puts, you come out "balanced" even though you take on risk because you're naked shorting the puts. You short 30% more puts than calls because the calls are 30% more expensive than the puts.
Naked shorting isn't for me (yet?), but I'm guessing the same thing could be done with bull put spreads, though that would add complications to the delta calculations. I'll have to think about that. Thanks YBF.
I've had a good weekend as well.
Bought May31 calls for $1.02 and sold today for $1.45
Bought May32 calls for $0.45 and sold today for $0.69
I'm not experience enough to trade complex strategies, but I'm pretty happy with a ~50% return using simple calls.
As I make money with AGNC/MTGE/others I've been acquiring ACAS Jan2014 calls with some of the profits. The Jan 16 calls are only $0.50, and the Jan 17 calls are only $0.30. Hard for me to pass up.
I closed out all of my WMC stock and 2/3 of my calls (entered between $0.70 and $1.15) today between $1.45 and $1.65. I'll probably exit completely first thing in the morning tomorrow and get ready to buy puts on ExDiv.
I'm guessing the chances of an SPO in the following week to be very high. After the 0.95 dividend drop to about $22.85 (assuming same close as today), this is still 5.4% above the previously reported book value of $21.67. It's also been 6 months since their previous (and only) SPO.
One thing I tried to do today was to purchase Apr 22.28 puts in the same order as selling my Apr 22.28 calls so that I wouldn't be stuck with the $0.05 increments for each. No luck there, but my question is regarding purchasing the Apr 22.28 puts before ExDiv vs after. Right now the bid/ask is 0.15/0.25. Is there a good way to estimate what the bid/ask (or mark) will be on ExDiv?
What is it that you disagree with? That AGNC has a higher probability of a SPO than MTGE? I'm not saying that it's probable that AGNC will SPO in the next week (or two), only that it's more probable than for MTGE. MTGE has a gap to close before it reaches previous book value, while AGNC is already above previous book value.
At this point I'm not willing to assume that BV has grown. Maybe, maybe not.
AGNC's last reported (2/7/2013) book value was $31.64. Now that that PPS is approaching 103% of BV, we're getting close to, or already in, SPO range. Given the widening spreads, AGNC might see the potential investments with SPO money as too tasty to pass up (even only at 102-103%) and pull the trigger now. MTGE is still below last reported book ($25.74) so much less likely to SPO. Of course, what their current BV is...I have no idea and no way to appropriately estimate it.
I have no options in either at the moment (very heavy into WMC though), but I shifted all my AGNC stock into MTGE.
NEW YORK, March 18, 2013 (GLOBE NEWSWIRE) -- New York Mortgage Trust, Inc. (NYMT) (the "Company") announced today that its Board of Directors declared a regular quarterly cash dividend of $0.27 per share on shares of its common stock for the quarter ending March 31, 2013. The dividend will be payable on April 25, 2013 to common stockholders of record as of March 28, 2013.
Probable short-term opportunity. As Doc mentioned, going forward with a $0.32 quarterly dividend gives less than 10% annual yield at the current share price. However, with the distribution of SBY shares at a rate of 5 SBY for every 100 TWO, and SBY's share price of $19.27, this gives a total return of $1.27 ($0.32 + $0.96) for this dividend. That's 9.4% this quarter.
Some big questions pop up now, though. Where the share prices goes between now and ExDiv-1 will depend on how investors value the short-term return this quarter vs the long-term prospects of a dividend at $0.32.
Also, what will happen to TWO options given this special dividend of stock in SBY? Because it's stock, will the options not be adjusted? Anyone know how that works?