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Trade Adjustment – Armour Residential (ARR) option trade – put roll over

As time was running short in regards to this trade I decided to take action to avoid assignment of Armour Residential (ARR) stock. It is a risky move and I completely know it. I was thinking about it and although I am incresing my risk by doing this I decided to take it.

Armour Residential was recently beaten down by two events. One was a fear of FED ending the stimulus (which I however think isn’t a bad thing for this type of REITs) and the second fear is the fear of rising interest rates, which would make bonds more attractive over dividends.

I consider both reasons as bullsh*t, and I think that dividend paying stocks will beat bonds over long haul no matter what interest rates we will have in the future, as was proven in the past anyway.

The rates hasn’t changed yet and the stimulus hasn’t changed yet either. So all the selling now is like throwing out your life buoys out of your ship because the Captain announced that the ship entered into an iceberg field.

However, as this panicking selling of dividend stocks is generally good for us, dividend growth investors, it wasn’t good for my ARR short put trade.

I no longer believe in this stock and I no longer want to hold it.

I held a July short put contract and as we were approaching to the expiration day next month, I decided to move this trade farther away in time to avoid early assignment.

I bought back my original contract and sold 2 new contracts far in January 2014. By doing so, I bought more time and collected more premium. I also took more risk. If it ever happens and I get early assigned, I doubled my risk and now I am risking twice as much as I risked originally.

If the stock gets back up, the contracts will lose value and I will either buy them back or let them expire.


06/04/2013 09:30:57 Bought 1 ARR Jul 20 2013 7.5 Put @ 2.79
06/04/2013 09:30:57 Sold 2 ARR Jan 18 2014 7.5 Put @ 2.9


Time will show and I will have to wait until January 2014 to see the results.

Happy Trading!

2 responses to “Trade Adjustment – Armour Residential (ARR) option trade – put roll over”

  1. Jake @ Common Cents Wealth says:

    Being that you don’t want to be assigned the stock it seems like you made a smart decision. Like you said, it doubled your risk, but with more risk comes more reward. Hopefully this works out well for you.

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