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.
- 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.
- 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.
- 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
- 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?
- 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.