That might be a good solution. WhatsTrading.com posted an interesting summary (below) about what happened last week. The spike in vols in a number of other financial names seems to suggest that the market is very worried about possible spillover from the problems with FNM and FRE.
The big story in the options market this week was the dramatic spike in implied volatility in many of the financial names, including huge gaps in Fannie (FNM) and Freddie (FRE) late in the week. The problems surfaced early in the week on reports that a new accounting rule (FASB 140 Rule) could force FNM and FRE to raise capital by bringing off balance sheet assets back to the balance sheet. The selling resumed on Wednesday on reports Fannie had paid record amounts in a sale of two-year notes The next day found no reprieve after the Wall Street Journal reported that government regulators were in talks about what to do if Fannie and Freddie faltered. Then Federal Reserve President Poole added more fuel to the fire by saying the two companies could be âinsolventâ. Friday, shares of Freddie and Fannie sank early on talk government officials are mulling the possibility of taking over one or both entities. If so, it could put them in a conservatorship, which would probably result in the equities being worth very little or nothing Yikes! However, some of the fears subsided when Treasury Secretary Paulson came out with soothing comments about a bailout not being imminent. Federal Reserve Chairman Ben Bernanke helped some as well, when he said FNM and FRE might be able to access the Fedâs discount window. In the end, FNM was trading at $10.25 and well off session lows of $6.68 and FRE bounced off a low of $3.89 to close at $7.75. Yet, both saw significant losses on the week and implied volatility in a number of financials is at an extreme. FNM July 10 puts and the FRE July 7.5 puts have implied volatility in excess of 400 percent. Big implied volatility gains were also seen in Lehman (LEH), Wachovia (WB), Sovereign (SOV), CIT Group (CIT), Annaly Mortgage (NLY), and Merrill (MER).
The big story in the options market this week was the dramatic spike in implied volatility in many of the financial names, including huge gaps in Fannie (FNM) and Freddie (FRE) late in the week. The problems surfaced early in the week on reports that a new accounting rule (FASB 140 Rule) could force FNM and FRE to raise capital by bringing off balance sheet assets back to the balance sheet. The selling resumed on Wednesday on reports Fannie had paid record amounts in a sale of two-year notes The next day found no reprieve after the Wall Street Journal reported that government regulators were in talks about what to do if Fannie and Freddie faltered. Then Federal Reserve President Poole added more fuel to the fire by saying the two companies could be âinsolventâ. Friday, shares of Freddie and Fannie sank early on talk government officials are mulling the possibility of taking over one or both entities. If so, it could put them in a conservatorship, which would probably result in the equities being worth very little or nothing Yikes! However, some of the fears subsided when Treasury Secretary Paulson came out with soothing comments about a bailout not being imminent. Federal Reserve Chairman Ben Bernanke helped some as well, when he said FNM and FRE might be able to access the Fedâs discount window. In the end, FNM was trading at $10.25 and well off session lows of $6.68 and FRE bounced off a low of $3.89 to close at $7.75. Yet, both saw significant losses on the week and implied volatility in a number of financials is at an extreme. FNM July 10 puts and the FRE July 7.5 puts have implied volatility in excess of 400 percent. Big implied volatility gains were also seen in Lehman (LEH), Wachovia (WB), Sovereign (SOV), CIT Group (CIT), Annaly Mortgage (NLY), and Merrill (MER).
