Generating a 3-Income Stream Put Trade: A Real-Life Example with ZIM Integrated Shipping Services Ltd. (NYSE: ZIM) – February 28, 2022
We have all read that when we sell a cash-secured put, the maximum return is the put premium. Is that true 100% of the time? Enter our exit strategy arsenal. On 9/27/2021, Richard shared with me a series of put trades he executed with ZIM. It involved an initial put sale plus 2 BTC and 2 more STO trades. This resulted in 3-income streams from 9/2/2021 – 9/27/2021.
Richard’s trades
- 9/2/2021: ZIM trading at $52.53 (#1 in chart)
- 9/2/2021: STO the 10/15/2021 $48.00 put at $2.25 (#1 in chart)
- 9/16/2021: ZIM trading at $60.65 (#2 in chart)
- 9/16/2021: BTC the $48.00 put at $0.50 (#2 in chart)
- 9/22/2021: ZIM trading at $55.00 (#3 in chart)
- 9/22/2021: STO the 10/15/2021 $48.00 put for $1.00 (#3 in chart- “hitting a double)
- 9/23/2021: ZIM trading at $58.90 (#4 in chart)
- 9/23/2021: BTC the $48.00 put at $0.50 (#4 in chart)
- 9/27/2021: ZIM trading at $55.10 (#5 in chart)
- 9/27/2021: STO the 10/15/2021 $50.00 put at $1.30 (#5 in chart- rolling-up to hit a triple)
Price chart showing Richard’s trades
Initial calculations
- The initial 43-day time-value return is 4.92%; 41.75% annualized (red arrows)
- If exercised, shares are purchased at a 12.89% discount from when the trade originated
- If the put had been exercised, ZIM would be purchased at a 12.89% discount (blue arrow)
Total premium including exit strategy execution
($2.25) – ($0.50) + ($1.00) – ($0.50) + ($1.30) = $3.55
Time-value return as of 9/27/2021[$3.55/ ($50.00 – $3.55)] = 7.64%
As of 9/27/2021, the time-value return moved up by 2.72% (7.64% – 4.92%) as a result of exit strategy executions.
Discussion
Management of our put-selling trades will allow us to mitigate losses and, in many situations, achieve higher than initial premium returns.
Author: Alan Ellman