Annaly Capital Management Inc. will release its third-quarter 2025 results on October 22, after the market closes. The company is expected to report higher earnings and net interest income compared to last year. In the previous quarter, Annaly exceeded earnings expectations, thanks to better average yields on interest-earning assets. However, the book value per share declined. Overall, Annaly has often surpassed estimates, with an average surprise of 2.19% in three of the past four quarters.

Net Interest Income Estimate

The consensus estimate for net interest income in the third quarter is $447 million, a significant increase from $13.4 million last year. Earnings are expected to be 72 cents per share, which is a 9.1% rise from the previous year. Even after the Federal Reserve cut rates in September, mortgage rates stayed stable. This stability has encouraged more refinancing and new loans. Annaly’s mortgage-backed securities (MBS) likely faced high prepayment rates, which would help with net premium amortization. Agency MBS spreads also tightened, which could enhance Annaly’s book value and service fees. Net servicing income is anticipated to rise by 15.6%. However, Annaly currently has an Earnings ESP of 0.00% and a Zacks Rank of 3, indicating it might not beat earnings expectations this time. In the third quarter, Annaly performed better than the industry and Orchid Island Capital, but lagged behind Arbor Realty Trust.

Outlook for Derivative Positions

As Annaly prepares to report earnings on October 22, the setup for derivative positions is complicated. Despite the expected significant increase in net interest income, forecasting models do not suggest a high chance of an earnings surprise. This indicates that good news may already be reflected in the stock’s price, possibly limiting any major price increases. The broader interest rate environment also supports a positive outlook for book value. Following the Federal Reserve’s 25-basis-point rate cut on September 17, 2025, the average 30-year fixed mortgage rate barely changed, dropping slightly from 6.15% to 6.05% according to recent housing finance data. This stability has helped tighten agency MBS spreads, benefiting Annaly’s portfolio. In this context, the options market is experiencing increased premiums ahead of the earnings announcement. The 30-day implied volatility for NLY has risen to nearly 45%, significantly higher than its 52-week average of 35%. This situation makes selling volatility appealing, as strategies like short straddles or iron condors could profit if earnings meet expectations without major surprises. For traders who are optimistic about mortgage servicing rights and anticipate an upside surprise, a defined-risk strategy is advisable. The sharp declines in book value during the volatility of 2023 remind us to be cautious. A bull call spread would allow traders to take advantage of a modest price increase while limiting potential losses if the stock does not rise. Create your live VT Markets account and start trading now.

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