In article, “Subprime Lenders Are In the Bear House”, we outlined a bear call credit spreads stock options strategy for the subprime mortgage lenders. All four bear call credit spreads positions selected were profitable with an average return of +10.9%.
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The news on the subprime front is still gloomy. Mortgage lenders are tightening lending standards and many potential homebuyers are not able to find a mortgage lender willing to lend them the money to purchase a house or the borrowers now find the interest rates and/or required down payments unsuitable for their budgets.
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The subprime issue has gotten the interest of the U.S. Congress and numerous proposals are being bandied about in an attempt to “fix” the problem.
A recovery for the subprime market does not appear anywhere near on the horizon, so the subprime mortgage lenders continue to have a bearish look. Using PowerOptions stock options search tools we discovered the following subprime bear call credit spreads stock options positions.
| Bear-Call Credit Spread Search Results | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock Sym |
Stock Price |
Sell Option |
Expire/ Strike |
Bid | Buy Option |
Expire/ Strike |
Ask | % Return |
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| LEND | 12.05 (-0.52) | QFWDC | 07 APR 15.0 (29) | 0.45 | QFWDW | 07 APR 17.5 (29) | 0.2 | 11.1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| NFI | 6.06 (-0.20) | NFIDU | 07 APR 7.5 (29) | 0.5 | NFIDB | 07 APR 10.0 (29) | 0.2 | 13.6 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The search returned two potential bear call credit spreads stock options positions, LEND and NFI. Of note, one stock (NEW) for a position selected last for month is having so much difficulty over the subprime issue, it is no longer optionable.
The bear call credit spreads positions found for LEND and NFI have potential returns of 11.1% and 13.6%. These positions will be fully profitable if the stock price remains below the short strike price of the position at options expiration, in this case $15 for LEND and $7.5 for NFI.
If the stock price rises above the short strike price, the position begins to have a negative return. If the stock price rises above the long strike price, the position is essentially a total loss minus the initial credit.
Competitors:
Competitors for LEND include: ACC Capital Holdings (private), Long Beach Mortgage Company (private), and Ocwen Financial Corp. (OCN).
Competitors for NFI include: Hanover Capital Mortgage Holdings Inc. (HCM), and AmNet Mortgage, Inc. (private).
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PowerOptions provides Internet based tools for analyzing stock options with specific search criteria and for finding potentially lucrative option income. For those seeking to execute a bear call credit spreads investment strategy for their personal portfolios, PowerOptions provides an Internet based search engine for finding potentially lucrative income producing bear call credit spread options positions.
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[tags] U.S. Congress, ACC Capital Holdings, Long Beach Mortgage Company, AmNet Mortgage, Inc., OCN, Ocwen Financial Corp., bear call credit spreads, investment strategy, iron condor, option income, poweroptions, selling naked puts, stock option trading, stock options [/tags]