Replies to post #780139 on Fannie Mae-No Politics (FNMA)

[Wingsjr]

You forget that pension funds and other institutions own commons, the fear of the political fallout will protect coms.

[kthomp19]

I think it is a hedged position, although it is two long positions.

You're exactly right. A hedge isn't always meant to exactly offset the risk of the initial position.

The way a FnF common shareholder hedges their position is by being long the juniors.

The way a FnF junior pref shareholder hedges their position is by being short the common.

That alone proves that the two classes are fundamentally different, notwithstanding all the other ways in which they are.

This is what a classic hedge looks like.

Good explanation.