It was garbage day at the market, AIG up 8%, Ambac up 104.55% (you read that correctly), MBIA up 5.33%, Freddie up 13.87%
As the penny stock frauds (First Jersey, Stratton Oakmont, Blinder Robinson et al) used to say:
Talkin' trash and makin' cash!!!From BloggingStocks:
Last Friday, bailed-out mortgage lender Fannie Mae (FNM) was the target of a skeptically skewed options strategy. Around midday, the stock's January 2012 1-strike put and 1-strike call each traded a block of 9,995 contracts, both of which were marked "spread." The put options traded at the ask price, suggesting they were purchased, while the calls changed hands closer to the bid price -- indicating they were sold. Open interest at both strikes surged by roughly 10,000 contracts over the weekend, confirming that all of the contracts involved were newly opened.
By simultaneously buying the January 2012 1-strike puts and selling the January 2012 1-strike calls, this speculator has initiated a synthetic short position on Fannie Mae. The purchase of the long puts will allow the trader to profit from any decline in the share price during the long term.
Meanwhile, the sale of the short calls places this speculator at risk of swallowing heavy losses should FNM rally. If the stock climbs and his calls are assigned, he'll be on the hook to deliver 100 shares per contract at $1 apiece, regardless of what the equity's actual market price might be at the time.
In other words, this option spread effectively mimics the risk/reward profile of a short stock position, without the trader having to go through the extra step of borrowing the shares. (However, unless these calls are hedged by a sufficient amount of FNM stock, the options player will need to maintain a healthy dollar amount in his margin account.)...MORE
