Insights 
VT 
Annaly Capital Management Inc. is set to release its third-quarter 2025 results on 22 October, post-market close. The company is projected to see increases in earnings and net interest income compared to the previous year.
In the prior quarter, the earnings surpassed expectations, driven by an improvement in the average yield on interest-earning assets, though there was a decline in book value per share. Annaly has generally exceeded estimates, with a 2.19% average surprise in three of the past four quarters.
Net Interest Income Estimate
The consensus estimate for the third-quarter net interest income stands at $447 million, up from the previous year’s $13.4 million. Earnings expectations remain at 72 cents, representing a 9.1% increase from last year.
Despite Federal Reserve rate cuts in September, mortgage rates remained stable, fostering growth in refinancing and origination. Annaly’s MBS holdings likely experienced high prepayment rates, positively impacting net premium amortisation. Agency MBS spreads tightened, potentially boosting Annaly’s book value and servicing fees, with net servicing income expected to rise by 15.6%.
However, Annaly’s current Earnings ESP is 0.00% with a Zacks Rank of 3, not indicating a likely earnings beat. In the third quarter, Annaly outperformed the industry and Orchid Island Capital but not Arbor Realty Trust.
Outlook for Derivative Positions
With Annaly’s earnings report coming on October 22, we are seeing a complicated setup for derivative positions. While consensus estimates project a significant year-over-year rise in net interest income to $447 million, forecasting models are not indicating a strong chance of an earnings beat. This suggests that the positive news might already be priced into the stock, limiting the potential for a large upward move.
The broader interest rate environment supports the positive outlook on book value. Despite the Federal Reserve’s 25-basis-point rate cut on September 17, 2025, the average 30-year fixed mortgage rate has remained sticky, dropping only slightly from 6.15% to 6.05% according to the latest housing finance data. This relative stability has helped agency mortgage-backed security spreads tighten, which is a direct benefit to Annaly’s portfolio.
Given this context, the options market is showing heightened premiums ahead of the announcement. We see that 30-day implied volatility for NLY has climbed to nearly 45%, well above its 52-week average of 35%. This makes selling volatility attractive, as strategies like a short straddle or an iron condor could benefit if the earnings come in as expected without a major surprise.
For traders who are more optimistic about the outlook for mortgage servicing rights and want to bet on an upside surprise, a defined-risk strategy is the most sensible path. We recall the sharp declines in book value during the volatility of 2023, making caution paramount. A bull call spread would allow traders to capitalize on a modest rally while capping potential losses if the stock fails to move higher.
