Freddie Mac (FRE) and Fannie May (FNM) announced they plan to jump into the subprime mortgage arena. The housing industry has been in the doldrums for several months now after a few years of furious activity. The low interest rates fueling the housing boom have abated, and some neighborhoods are now awash in unsold homes. The subprime mortgage lenders who aided and abetted the housing boom are in dire straights as their creditors have dried up their supply of cheap easy credit.
So are Freddie Mac and Fannie May throwing a life preserver to the troubled housing market, or are they throwing he housing market an anchor and joining in on the slide to the unknown depths.
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It wasn’t very long ago people were grumbling about Freddie and Fannie’s increasingly holding a larger and larger portion of mortgages in the housing market. With Freddie and Fannie jumping into the subprime market, their gobbling up more of the mortgage lending market share can continue.
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The housing market should profit from Freddie and Fannie’s subprime meddling, and Freddie and Fannie will be able to leverage their foray into subprime into more income eventually. Some covered calls stock options positions for Freddie and Fannie are shown below:
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| Stock Sym |
Stock Price |
Option Sym |
Expire &Strike |
Opt Bid |
%Dnsd. Prot |
%If Unch. |
%If Asgnd. |
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| FNM | 57.92 (+0.08) | FNMFL | 07 JUN 60.0 (58) | 1.2 | 2.1 | 2.1 | 5.8 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| FRE | 64.83 (+0.47) | FREJN | 07 OCT 70.0 (184) | 1.6 | 2.5 | 2.5 | 10.7 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The FNM and FRE covered calls stock options positions are both out-of-the-money with maximum potential returns of 5.8% and 10.7%. The maximum potential returns require the price of the stock to increase to or above the strike price of the call option.
The FNM and FRE covered calls positions have downside protection and % if unchanged returns of 2.1% and 2.5%.
Competitors:
Competitors for FNM include: Countrywide Financial Corp. (CFC), Freddie Mac (FRE), Wells Fargo & Co. (WFC), Triad Guaranty Inc. (TGIC), and Thornburg Mortgage Inc. (TMA).
Competitors for FRE include: Citigroup Inc. (C), Countrywide Financial Corp. (CFC), Fannie Mae (FNM), Triad Guaranty Inc. (TGIC), and Thornburg Mortgage Inc. (TMA).
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[tags] C, Citigroup Inc., CFC, Countrywide Financial Corp., FNM, Fannie Mae, FRE, Freddie Mac Corp., TGIC, Triad Guaranty Inc., TMA, Thornburg Mortgage Inc., WFC, Wells Fargo & Co., covered call investment strategy, investment strategy, iron condor, poweroptions, stock option trading, stock options [/tags]