Mortgage REIT AGNC Investment Corp (AGNC) is up 11% over the past year, before including its hefty dividend of 15%. One trader is betting that shares will settle down over the next few months and trend lower.
That’s based on the February 2025 $9 puts. With 87 days until expiration, 5,048 contracts traded compared to a prior open interest of 102, for a 50-fold rise in volume on the trade. The buyer of the puts paid $0.23 to make the bearish bet.
AGNC shares recently traded for about $9.75, so the stock would need to decline by 7.7% for the option to move in-the-money. That would also put shares close to their 52-week low of $8.57.
As a mortgage REIT, AGNC borrows cheaply and leverages up a portfolio of home mortgage loans. As those loans are paid back, cash flows accrue to AGNC, when then have to be paid out as dividends.
The recent pullback in shares has coincided with mortgage rates staying stubbornly high following the first two interest rate cuts by the Federal Reserve since 2020.
Action to take: Income investors may like shares on a pullback to the low $9 range, as mortgage REITS like AGNC should be bought for their high current income rather than price appreciation.
For traders, shares are starting to trend lower, making the February $9 puts attractive. Traders can likely see mid-double-digit returns from a healthy pullback in shares from here.
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 company mentioned in this article.