Unusual Options Activity: AGNC Investment Corp (AGNC)

Mortgage REIT AGNC Investment Corp (AGNC) has dropped slightly so far this year, as interest rates continue to rise. One trader expects shares to decline even further into next year.

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  • That’s based on the March 2024 $9 puts. With 225 days until expiration, 22,050 contracts traded compared to a prior open interest of 232, for a 95-fold jump in volume on the trade. The buyer of the puts paid $0.54 to make the bearish bet.

    Shares recently traded at $10, so they would need to drop $1, or 10 percent, in just over seven months.

    Such a move is possible, as mortgage REITs tend to be sensitive to moves in interest rates, and shares have traded as low as $7.85 over the past year.

    However, mortgages aren’t being refinanced right now with rates at their highest levels in over 15 years. So it’s likely shares will trend lower, but AGNC may not face a massive drop as payments continue to be made.

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  • Action to take: Investors may want to hold off buying for now. While AGNC pays a generous 14 percent dividend at current prices, shares are trending lower. And the stock remains just over its book value. Investors would get a reasonable price in the $9 range for shares if they decline that far.

    For traders, the March puts are inexpensive, especially ahead of a potential move lower in the coming months. Traders could see triple-digit returns on a big drop or fear in the credit markets in the months ahead, which makes this trade a worthwhile hedge after this year’s banking crisis.


    Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.

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