Fannie, Freddie soar as day-traders seek profit
Shares of U.S. government-controlled mortgage lenders Fannie Mae
Fannie Mae shares rose as much as 24 percent to $2.12 while Freddie Mac gained as much as 14 percent to a high of $2.34 in morning trading on the New York Stock Exchange.
Though both hard-hit companies were essentially nationalized by Uncle Sam to prevent them from going under last fall, Fannie Mae shares have more than doubled since starting the year at 76 cents. Freddie Mac shares have almost tripled in value from 73 cents.
You can get these massive spikes in these low-dollar companies that are structurally in a lot of trouble, said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research.
Shares of other financial companies such as Citigroup Inc
The U.S. government seized Fannie and Freddie last September after they reported huge losses caused by plummeting U.S. house prices.
For better or for worse, then, some investors see the mortgage lenders following the rebound of the banking sector.
If the recession has actually ended and the economy is bouncing back, these investors would hope and believe that Freddie Mac and Fannie Mae will make a similar move as these others, said William Lefkowitz, option strategist at brokerage firm vFinance Investments.
In late morning trading, Fannie Mae shares were up 14 percent at $1.93 while Freddie Mac shares were up 6 percent at $2.18, despite any material news.
Joe Kinahan, chief derivatives strategist at Thinkorswim Group, a division of TD Ameritrade Holding Corp, said some investors may see an improving outlook for the mortgage giants thanks to an economic rebound and government intervention.
The only rumor I have heard is that the government may extend or increase the time frame for the government's first-time home buyer tax credit, which is supposed to expire this fall. If that happens, that would be great for Fannie and Freddie, he said.
Options markets were also very active Tuesday. During the first 45 minutes of trade, about 61,000 call options changed hands in Fannie -- more than three times its average daily volume and nearly five times the number of puts, according to option analytics firm Trade Alert.
Heavy call demand shows that investors expect Fannie and Freddie stock to rise.
(Reporting by Elinor Comlay, David Gaffen, Doris Frankel and Joe Giannone; editing by Ted Kerr and Matthew Lewis)
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