Shorting Fannie Mae (FNM)

Barron’s had a really bearish article on Fannie Mae (FNM) in today’s paper (the one hits my driveway on Saturday morning) and sure enough the street agreed with their logic.  FNM opened the day down and kept going.  After closing at 22.77 on Friday it went down to 18.50 and back above 20 briefly. 

While FNM was trading around 19.76 I sold four April 27 naked calls (FNMDW) and received $287.00 after commissions.  With implied volatility around 100 I was able to go $7 out of the money.  If Barron’s is right, I could have gone big at the money, but for those premiums I figured I’d reduce my risk and keep it higher and safer.  The chart looks like any rally could stall at a few places on its way back to the upper 20s, but if FNM makes a comeback, that will likely mean the rest of my portfolio will be coming back too and I don’t see that in the cards by April expiration.  This trade is somewhat of a hedge on the rest of my long positions which are killing me, especially today.

I lost $3,000 on paper today.  The biggest lost came from my recent enemy I haven’t sold for some odd reason, NVDA.  Other dishonarable mentions included DSX, which still trades out of the money from my puts, FWLT, which I doubled down on a day before the levee broke and POT, which is still $7 OTM.  Others were down, but those cost me the most.

I’ve held NVDA in spite of its chart, because the fundamentals seem to make sense to me still.  Maybe that’s why I’m wrong.  Charts rule.  Here’s a swipe from Ford Equity Research’s analyst report dated 3/7/08 regarding NVDA’s price performance in relation to its P/E.  Watching this makes you think NVDA is ready for a massive rally.  Maybe it’s waiting for my eight March options to expire in nine days and then it’ll head back towards 30, giving me huge profits.  Anyone buying that?