Price Forecast:

Bullish Case: LOAN's price return surface indicates potential for recovery in the next 12 months, aided by favorable economic indicators such as anticipated interest rate cuts and increased borrowing demand, which could drive up prices significantly.

Bearish Case: Increased loan defaults due to economic instability and high interest rates remain a critical risk. The historical trend suggests a likelihood of continued negative returns over 1-2 year periods, contributing to further price declines.

Potential Outcomes:

1. Rate cuts increase loan demand (40%).

2. Economic downturn raises loan defaults (30%).

3. Regulatory support fosters risk appetite (20%).

4. Flat trading persists amid market indecision (10%).

Trading Oracle: Consider initiating a bullish debit spread on LOAN—buying $7.50 calls expiring in December 2024. With high implied volatility, the potential upside is substantial if prices rise in response to economic indicators. Risk/reward is favorable as you position for a volatile upturn.

November 13, 2024