Price Forecast:

Bullish Case: The recent merger with Western Asset Mortgage Capital can yield operational synergies, driving MITT's price upwards. Additionally, the high historical returns in previous holding periods signal potential for positive performance. Volatility may bring opportunities for profit.

Bearish Case: Given the high implied volatility and recent market sentiment indicating caution, MITT faces significant risks. Poor economic conditions and an uptick in foreclosure rates could further destabilize its share price, leading to possible declines.

Potential Outcomes:

• 60% chance of operational efficiency gains boosting share price by +15%.
• 25% risk of continued decline in book value leading to -10% dip.
• 15% potential for increased defaults impacting portfolio quality, possibly causing a -20% drop.

Trading Oracle: Trade bullish debit spreads around the $8 strike with expirations in 3-6 months, leveraging high implied volatility. This captures upward price action from merger synergies while maintaining risk management. A strong probability of profit aligns with historical trends seen in the MITT volatility surface.

December 21, 2024