U.S. Markets open in 9 hrs 11 mins

Call spread targets American Capital

Chris McKhann (chris.mckhann@optionmonster.com)

Shares of American Capital Agency have been plunging in the last couple of weeks, but one option trader is cautiously optimistic on the real-estate investment trust.

AGNC is down another 3.53 percent to trade at $31.44 in early afternoon trading. The stock tumbled to $29.63 earlier in the session, its lowest level since early April. Shares hit an all-time high of $36.77 a month ago but gapped down from there and have traded down from above $35 since Oct. 5.

The big option trade today is a November call spread . A trader bought 2,020 November 31 calls for $1.27 and sold 4,040 November 34 calls for the bid price of $0.20, according to optionMONSTER's tracking systems.

This ratio spread cost $0.87 to open and takes a maximum profit if AGNC is around $34 at expiration. Above that level, the trader faces assignment and the obligation to sell shares from the additional short calls. Call ratio spreads can also be part of " stock repair " strategies, this trade could fall under that category. (See our Education section)

More From optionMONSTER