Stock Option Trading News

Bearish on Subprime Lenders Returned +12.4% in Apr. 2007

In article, “Subprime Lenders Are In the Bear House”, we outlined a bear call credit spreads stock options strategy for the subprime mortgage lenders. We’ve continued to go bearish on the subprime lenders and for April 2007, both positions we selected were fully profitable returning a very nice average return of 12.4%.

The news on the subprime front is still gloomy. The inventory of unsold homes is very high and subprime borrowers are defaulting on loans at a very high rate.

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There is some hope for the homebuilders with Freddie Mac (FRE) and Fannie May (FNM) stepping into the fray, see article “Freddie and Fannie Jumping Into Subprime”. But with Freddie and Fannie getting into subprime, it’s going to get worse before it gets better for the subprime lenders.

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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 position.

Bear-Call Credit Spread Search Results
Stock
Sym
Stock
Price
Sell
Option
Expire/
Strike
Bid Buy
Option
Expire/
Strike
Ask %
Return
FMT 8.09 (-0.04) FMTFB 07 JUN 10.0 (51) 0.3 FMTFV 07 JUN 12.5 (51) 0.15 6.4
(For more details click the ticker symbol above)

The search only returned one position this month as most of the subprime lenders issue earnings reports between now and May/June options expiration. And generally it’s a good idea to avoid spread investing in companies with an upcoming earnings report. The PowerOptions stock options search tools can be configured to automatically screen out companies with an upcoming earnings report.

Fremont General (FMT) previously issued its earnings report on April 12, so a bear call credit spreads position for FMT is potentially attractive. The FMT bear call credit spreads has a potential return of 6.4% if the price of FMT is below the short strike price of $10 at options expiration in 51 days.

The position begins to lose money as the stock price rises above the short strike price and the position becomes essentially a total loss if the price of the stock is above the long strike price of $12.5 at stock options expiration.

Competitors:
Competitors for FMT include: Bank of America Corp. (DE) (BAC), Countrywide Financial Corp. (CFC), and Wells Fargo Home Mortgage (private).
PowerOptions provides a free 14-day trial of its service. So join PowerOptions today, and you too can start reaping the benefits of the subprime lenders bear call credit spreads investment strategy.

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.

PowerOptions‘ sister company PowerOptionsApplied provides expert stock option trading recommendations. PowerOptionsApplied specializes in covered calls, iron condor and selling naked puts stock options strategy recommendations. PowerOptionsApplied provides a 30-day risk free trial of its service.

[tags] Wells Fargo Home Mortgage, BAC, BankAmerica Corp., CFC, Countrywide Financial Corp., DE, Deere & Co., FMT, Fremont General Corp., bear call credit spreads, investment strategy, iron condor, option income, poweroptions, selling naked puts, stock option trading, stock options [/tags]

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