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On Friday, Bank of America Corporation (NYSE:BAC) incurred a loss of around $10 million from a “dividend trade” in which traders sell call options the day prior to an exchange-traded fund going ex-dividend, with the intention of repurchasing them at a lower price. The procedure is a favorite of big players, but is far from risk-free.
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Since the new Federal Reserve stimulus was announced, the spread between agency mortgage-backed securities and 10-year Treasuries has imploded from 60 basis points to only 6. With no spread remaining in practical terms, observers expect that non-agency real estate investment trusts such as Chimera Investment Corporation (NYSE:CIM), Invesco Mortgage Capital Inc. (NYSE:IVR), MFA Financial, Inc. (NYSE:MFA), and Western Asset Mortgage Capital Corporation (WMC) should continue to benefit from housing prices that are recovering, according to Chris Flanagan at BAML.
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