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Price Forecast:

Bullish Case: STWD's diversified holdings and high dividend yield signal potential for recovery as interest rates stabilize. Strong demand for properties could bolster cash flows, supporting share price growth.

Bearish Case: Persistently high leverage and economic uncertainty, including potential rate hikes and a volatile real estate market, could pressure STWD’s financial stability, leading to further declines in share price.

Potential Outcomes:

1. Recovery in lending (40%): Economic conditions improve, driving growth.

2. Continued decline (35%): Ongoing financial instability hampers recovery.

3. Stable performance (15%): Dividends maintained, but growth stagnant.

4. Market turmoil (10%): Major economic disruption impacting cash flows and share prices.

Trading Oracle: Consider initiating a bullish debit spread with STWD 01/17/2025 20.00 C and 01/17/2025 21.00 C. This utilizes the current backwardation in volatility for profit potential while balancing risk due to favorable option pricing. Time frame: 3-5 months for maximum benefit.

October 13, 2024