Minyan Mailbag: Time Preferences
Note: Our goal in Minyanville is to remove intimidation from the financial markets and encourage an interactive dialogue among the Minyanship. We share this next column with that very intent.
Dear Mr. Succo,
I own Fannie Mae (FNM) puts that expire in Jan '06 and I'm thinking of rolling them to Jan '07. However, I feel that, "everything that is going to be known about Fannie Mae through this investigation will be known," by January and I might be wasting my money buying the extra year. I'm not looking for advice (I know you guys don't do that) but was curious about your thoughts from a stylistic standpoint.
position in fnm
If congress is foolish enough to not curtail GSE portfolios--and they may be--then these stocks can continue to go up (as investors pile back in). If that happens, the probability increases that the GSEs will eventually blow up the whole system.
In fact, if this scenario unfolds, I will be a better buyer of financial stock volatility down the road.
But I don't think it is worth it to roll to '07 as it will cost too much: our '06 paper may not work, but right now there is not yet enough gamma in '07 options to do any good. I think the best strategy for us (and not advice to you) is to keep '06 paper and, if it doesn't work, re-evalute and roll later. Whenever you buy long-term options, you are paying a very large premium to lock in a specific scenario and, by definition, the farther out in time the less certain that scenario will unfold.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Daily Recap Newsletter