Agnc call spread, is the risk reward good?

Discussion in 'Options' started by optionnew, Aug 27, 2011.

  1. I enterd a diagonal call spread on AGNC Reit. Bought Jan 2013 25 call for 4.12, & sold sep 29 call for .77,
    Total debit is 3.35.
    Total risk 3.35,
    If stock closes above 29 profit is .65 in 3 weeks(20% return)
    If stock closes below 29 I sell the Oct or Nov call frobably for another 75¢.
    If stock falls dramtically, IV will probably go up on the 25 call & will probably have some premium left in it even if the stock falls below 25.
    Does that make a good risk reward trade??
  2. jayre


    Why did you pick AGNC, this strategy can be used on any other stock?
  3. You run the risk of having the Sep 29's exercised to capture the dividend if it goes ITM.
  4. If the 29 goes ITM, I would just exercise my 25 call before dividend, and my return would be 20% in 3 weeks. I would consider that a good outcome.
  5. On normal stock the long term call will be much more expensive, by agnc because of the divdend impect on pricing the long term call is cheap.
  6. Today I rolled over my short calls from September to December for a credit of 0.50. My total cost for the spread now is $2.85.(3.35-.50). Stock goes ex dividend next week, if stock goes higher i expect my short call to get exercised to capture dividend, and i will exercise my calls as well. In that case i will get $4 of the spread $1.15 profit, pretty decent for 3 weeks.
  7. spindr0


    When you're long and the UL goes up several pts, the result is pretty decent. If it goes down several pts, the loss is pretty decent. No rocket science here.
  8. FSU


    As of now, your Dec calls will not be exercised, but you should exercise your long calls for the dividend. This will leave you synthetically short the Dec 29 puts ( long the Dec 29 buywrite). If you are comfortable with that position great, but if you want out I would suggest you simply get out of the position and take your profit.
  9. You are right for now. But the ex dividend is next week with a dividend of 1.40, if the stock will be trading for more then 30 I think I will get called. Should the stock be trading for 29.50 I would probably not get called, in that case I plan the following,
    Exercise my 25 option before ex dividend, get the 1.40 dividend, next day sell the stock & buy the 25 call again for reduced price.
    In that case my cost will be reduced even more by the dividend, and my max risk (besides the 1 day I own the stock) will stay by 2.85 or less..
    Make sense?
  10. spindr0


    What's the advantage in doing that? They pay him with his own money (a wash) and now he has more downside risk.
    #10     Sep 15, 2011