Wednesday, April 30, 2008

Update on the FRE "game"

back to 24.70 at some point today where I bot the batch I used to play the covered call game at the top of the range, $27. The call was $1.50 and now $0.45, unfortunately STILL not enough to retire.

Still haven't added any more and my thinking I should at $24, as it represents $3 drop from $27. Gawd this earnings waiting game is getting longer and longer. :)

Hmm, FRE-FNM "spread" widened , now at $3.40 at the close 5/1/2008. Maybe if I add before it hits 24 (my target) I should experiment with a couple hundred shares hedged with equal # of shares (NOT equal $) FNM short. I'll think about it tonight.

More notes:

  1. Could FNM bounce back to $30 ($2 up) which is a nice pattern if it completes within this triangle - remember it's been sold "hard" and that price is clearly not out of the question given the price range lately post BSC. ($27 - 34) - data @ BSC is not admissible.
  2. On the same axis, could the spread FRE-FNM be due to a bounce as well. That one is also on a tight channel as far as I can tell.
  3. If you get $2 FNM up and $1.50 tightening on spread, would you consider 5 days of "investing" be worth $3.50/$25 = 14% return unlevered unacceptable? :D
  4. The risk? Looks to me 20c more widening and $1.00 drop more on FNM resulting in $1.20 further drop if you go naked long. That's 6% loss unlevered. Can you take that risk?
  5. Let's say I use pure random walk theory ( I know NOTHING about these stocks ), Expected gain/loss = $0. Outcome anywhere between -$1.20 and +$3.50. The skew (and fat tail, check your option premium!!) is on your side?

Will think hard again later.

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