Fannie - Freddie weekend chat

The options movement of both GSE's are showing a worst case scenario at this point. If the goverment steps in with some remediative plan, its more then likely going to mean a complete wipeout of equity in these firms. the 7.5 and 10 strikes puts for the next few months are loaded with open interest. A small buy at the low of 6.75 and a covered call sale of the 10 dollar strike was managed today at 3 for a cost basis in the stock of 3.75 This was the only way that seemed worth a long position in the stock and locking in a profit. The only way i loose on this trade is if the stock breaches my buy price of 3.75 which i do not believe is likely. I do not see huge upside in the stock at any rate, so why not collar the profit?

It seems to me that the goverment is going to have to release another huge statement/package for these entities and the last thing headline the goverment needs is complete equity destruction, granted we're down to about 20 billion in combined market cap, we've already seen 100 billion destroyed on the long side with these two names alone. Credit spreads are starting to widen in short term goverment paper and something tells me a bailout is going to hurt the dollar and the US Goverments ability to borrow in the open markets down the road. That is a chilling proposition considering the DOLLAR IS BACKED BY DEBT!

Leh seems to have a different version of the same story, without the benefit of some kind of bailout. I think next week we should see a bounce beginning in the market from a goverment catalyst and its hard to say what names in the financial sector are worth buying. One thing is for certain, JP Morgan, Goldman are two guaranteed survivors. I will be looking to move into the XLF Aug 20 Calls this coming week. I have not been in GS since my trades last year.

Type rest of the post here

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