With Fannie Mae shares apparently headed for zero, we went bottom-fishing yesterday, looking to catch a dead-cat bounce from a Hidden Pivot at $5.20. The stock fell so hard, though, that we never even got a chance to get in trouble. Our strategy had called for buying October 6 calls for 1.10 if and when Fannie fell to the target. Since the stock had settled the previous night at 6.06, we needed for it to fall a further 20% in a single day to put our option bid in play. Little did we imagine that FNM was about to perform a cliff dive to $4 that would lop 33% from the value of its shares in mere hours. No less surprising is that call option premiums exploded as the stock fell. If they were pricey before yesterday's mini-crash, they were beyond exorbitant at yesterday's lows, so we wound up buying none. It would seem that no one is willing to sell these calls, so fearful are they that the Government could announce at any moment a new bailout plan that would cause the stock to soar. (Click on chart or image to enlarge) Look at a chart of Fannie (or Freddie, for that matter) and you can see why it is often so challenging to short a stock that everyone 'knows' is going to zero. In fact, it's usually easier, and less dangerous, to try and catch a piece of the corrective rallies. In the chart above, you can see how lethal Fannie's bear-baiting has been for those who have tried to stay short it. Keep in mind that ever since FNM began to fall apart last Halloween, its ultimate resting place at the very bottom of the Mindanao Deep was never much in doubt. But the stock fell so
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