Mortgage REIT AGNC Investment Corp (AGNC) has traded flat over the past year, as interest rates have held steady. One trader sees the potential for shares to rally over the next few weeks.
That’s based on the September 13 $10.00 calls. With 31 days until expiration, 10,421 contracts traded compared to a prior open interest of 244, for a 43-fold rise in volume on the trade. The buyer of the calls paid $0.26 to make the bullish bet.
AGNC shares trade right at $10, making this an at-the-money trade. The stock is close to its 52-week high of $10.57.
Mortgage REITs are essentially a leveraged play on the cash flows from home mortgage payments that have been bundled together. Mortgages are more likely to get paid off if interest rates decline and a property is then sold.
While highly leveraged, mortgage REITs like AGNC are one way to earn a high current income. AGNC currently pays a 14.3% dividend.
Action to take: Investors looking for current income may want to build a small stake here. Lower interest rates could help fuel a small price move higher over time.
For traders, the September $10 calls could play out well if there’s more fear in the markets over the coming weeks. The calls could produce mid-double-digit returns if events play out in AGNC’s favor.
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.