Thursday, August 6, 2009

Bullish Speculation Spikes as Fannie Mae Rumors Swirl (FNM; FRE)

The stocks are both up another 4% after yesterday's big jumps. From Schaeffer's Research:

Call buying surged Wednesday on Fannie Mae (FNM), as traders on the International Securities Exchange (ISE) bought to open 5,165 of these bullishly oriented bets. By contrast, just 100 puts were bought to open during the course of yesterday's trading.

Again today, traders are bum-rushing Fannie's option pits. Call volume has ramped up to 27 times the norm, with put volume clocking in at 19 times the expected activity. Judging by the day's most active options, it looks as though call buying continues to dominate.

The stock's August 1 call has seen 8,949 contracts cross the tape so far, with 80% of these trades occurring at the ask price. With open interest resting at just 2,539 contracts, it seems safe to say that a fair number of today's transactions are newly opened bullish bets.

Not far behind is the September 1 call, with 6,582 contracts changing hands; about 51% of these contracts have traded at the ask price. This option is much more popular than its August-dated counterpart, with the September call sporting robust open interest of 15,359 contracts....MORE

And from the Washington Post:

U.S. Considers Remaking Mortgage Giants

'Bad Bank' Would Wipe the Slate Clean for Fannie Mae, Freddie Mac by Taking Their Toxic Loans

The Obama administration is considering an overhaul of Fannie Mae and Freddie Mac that would strip the mortgage finance giants of hundreds of billions of dollars in troubled loans and create a new structure to support the home-loan market, government officials said.
The bad debts the firms own would be placed in new government-backed financial institutions -- so-called bad banks -- that would take responsibility for collecting as much of the outstanding balance as possible. What would be left would be two healthy financial companies with a clean slate.

The moves would represent one of the most dramatic reorderings of the badly shattered housing finance system since District-based Fannie Mae was created by Congress to support mortgage lending during the Great Depression. Both Fannie Mae and Freddie Mac, based in McLean, have government charters to buy home loans from banks, which they then repackage and sell to investors. The banks can then use the proceeds to offer more loans to home buyers....MORE

HT on the WaPo story: ClusterStock