Volume off the high revist- Capstead Mortgage, taking the short-side

The above chart shows the shares of the mortgage REIT Capstead Mortgage. The shares initially hit the volume off the high list on September 27, using the closing data for September 26. Interestingly, this high volume sell off occurred on essentially no news. I say essentially as there was an 8K release stating that a director would not stand for reelection. Unless the director was extremely important to operations, I doubt that that this would caused the 6% sell-off. Further still, CMO experienced a flash-crash of sorts in yesterday's trading, falling to a low of $12.39 before recovering from the loss.

I am thinking somebody knows something here and is trying to get out. The balance sheet is highly leveraged, with debt representing 91% of total capital. Debt capitalization is completely short-term borrowing, primarily repurchase agreements. The company uses the proceeds from the REPO's to buy mortgage securities, with most of the investment portfolio comprised of adjustable rate mortgage notes. The company churns it portfolio considerably over the year.

I am going to venture out at take a short-side call in CMO, but with a tight stop in the 8% to 10% range. The balance sheet churn, high leverage, and the potential for a margin squeeze (considering the Fed's intention to purchase MBS securities over Treasuries) may leave cash flow and the dividend vulnerable.