Trade duration: days - until Biden inauguration, or months following Supreme Court decision. (more so price level dependent, not time, but Jan inauguration as potential time horizon catalyst)
Thesis: Bloomberg just reported (link here) unsourced incoming Biden team discussing firing/replacing of libertarian FHFA Director Mark Calabria (term ends 2024). Fannie shares jump +8% on the news - note that Calabria out & replaced by anyone who is a Biden pick would be taken negative on the stock. My assumption for stock rally on the news - assumptions of Calabria to try to take drastic Hail Mary steps to potentially re-privatize Fannie & Freddie or recapitalize or do something un-doable in final Trump admin days. Very much a purely speculative “buy the rumor, sell the
fact additional rumor“ trade.
FNMA (Fannie Mae common shares) & FNMAS (Fannie senior preferreds) are super volatile, completely non SPX-correlated & strictly headline policy driven. FNMA maybe has slightly more volatility swings to the upside, but FNMAS swings plenty itself, and are the actual shares the US gov has owned since rescuing in ‘08 (& since has gotten all taxpayer $ back, and conducts “net worth sweep” where all earnings continue to go to US Treasury), so I prefer FNMAS.
Gabby Heffesse of ACG Analytics has been on RV a few times to discuss this trade:
A SLEEPING GIANT: OPPORTUNITY IN FANNIE MAE June 17 2020
I’ve personally been in & out with >100% returns (on the stock, no options) twice on FNMAS - I buy & sit in it/forget i even have it until a headline makes it rally → sell at 2x profit, then crash & buy again & wait. Ive long since taken my principal back & just playing with house money, currently in my long & wait stage. Most recently FNMA rallied +70% in 1 week following election & then crashed.