With the 30-Year Treasury near the 3% range, it’s not much of a surprise that speculative plays likeArmour Residential (ARR:NYSE)ARR Warrants peak the interest of some investors. Despite the fact that ARR common stock does pay a handsome monthly dividend, with a yield of over 19%. However, the shares have been under a little bit of pressure lately due to recent headwinds on the sector from the Obama Administration.
Now let us keep in mind that with such a high return, only a fool would think that there is no risk involved. So why should we look at an even more risky asset like ARR Warrants ? Especially when it’s seems easier to just buy the common shares with a nice yield.
Well the answer is pretty simple. It’s because speculative investors tend to flock to low priced warrants. Even if they are deeply out of the money like the above mentioned ARR Warrants. The common stock also plays a part because it is very liquid, and has a 3 month average volume of roughly 3 million shares.
The common shares of ARR have been an excellent short term trading vehicle. Mainly because volatility tends to come into the name prior to the ex dividend date, and like many Agency Reits, ARR tends to be involved in frequent stock offerings. The anticipation of these offerings frequently bring in buy side hedge funds to the short side not only for a quick trade, but to hedge their potential position in the upcoming deal as well.
ARR WARRANTS Can Be Risky
As far as the technicals are concerned on the common shares, ARR is currently coming off a short term downtrend. There is some resistance near $7 and longer term support slightly above the $6 range.
Now how do these short term movements factor into the performance of ARR Warrants ? Well they don’t, and probably won’t unless there is a massive rotation into high yielding stocks. Basically, ARR Warrants are way to far out of the money to play for anything other than a momentum scalp.
However, it’s not unusual for retail investors to go long securities like ARR Warrants on a lottery ticket basis. Usually risking a token investment with hopes of a grand slam like return.
In closing the terms are pretty vanilla. ARR Warrants have a strike price is $11 and they expire on 11/17/2013.
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