8/18/08

Gambling with Fannie Mae

Fannie Mae (FNM) and Freddie Mac (FRE) fell over 20% today, apparently because of a Barron's article. All of the sudden the prospect of a government bailout has investors spooked. How quickly things change.

There's usually a bounce back up following such steep declines. Shortly before market close, I bought a couple of December calls for Fannie Mae. I'm hoping the stock will go back to $7 or $8 a share or higher within the next two weeks. If it continues lower, I won't lose too much. That's why I bought calls instead of shares. Why December? I want to hold on long enough to benefit from any government efforts to stop the financials' plunge. There will probably be more short selling restrictions soon.

I thought about doing a strangle or a straddle, but I couldn't find a put to make it worthwhile.

To see how this and all my other trades work out, take a look at my trade notes on the lower right of this page.

Update: Out of Fannie.