beginners corner

Generating a 3-Income Stream Put Trade: A Real-Life Example with ZIM Integrated Shipping Services Ltd. (NYSE: ZIM)

We have all read that when we sell a , 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- “)
  • 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

 

ZIM: Price Chart Reflecting the 5 Steps of the Put Trades

 

Initial calculations

 

ZIM: Calculations with the BCI Elite Put Calculator

 

  • 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.

 

For more information on selling cash-secured puts

Best book

Best online video program with downloadable workbook

Best calculator

 

Your generous testimonials

Over the years, the BCI community has been incredibly gracious by sending our BCI team email testimonials sharing stories as to what our educational content has meant to their families. Moving forward, we have decided to share some of these testimonials in our blog articles. We will never use a last name unless given permission:

 

{YouTube comment}

Dr. Ellman and BCI are the best and most complete authority on the strategy of making money on selling and cash secured puts. While I have actually performed this “rolling-in” strategy ion the past, Alan Ellman’s discussion and his and his team’s putting together a detailed precise strategy is something that I never would have done. Kudos! My experience with equity options now spans 5 decades. Excellent job Alan and thank you.

Ronald

 

Upcoming events

1.Mad Hedge Summit: Free Zoom presentation

Tuesday March 15th at 11 AM ET

Selling Cash-Secured Puts: 4 Practical Applications 

Selling cash-secured puts is a low-risk strategy which generates weekly or monthly cash-flow. This presentation will detail how to craft the strategy to multiple applications which will align with various goals and personal risk-tolerances. Topics included in the webinar include:

  • Option basics
  • The 3-required skills
  • 4-practical applications
    • Traditional put-selling
    • PCP (Put-Call-Put or wheel) Strategy
    • Buy a stock at a discount instead of setting a
    • Ultra-low-risk put/ strategy

Real-life examples along with rules, guidelines and calculations are included in this presentation.

Registration link to follow.

 

2.Long Island Stock Investors Meetup Group

Stock Options: How to Use Implied Volatility to Determine Strike Selection 

Creating 84% probability successful trades for covered call writing and selling cash-secured puts

Wednesday April 13, 2022

7:30 PM ET – 9:30 PM ET

 

3. LIVE at The Money Show Las Vegas

May 9th – 11th

Details and registration link to follow.

2 presentations:

Portfolio Overwriting (free)

Increasing Profits in Our Buy-And-Hold Portfolios Using Covered Call Writing

A Comprehensive Analysis of Covered Call Writing: 2-hour Master’s Class (paid event to The Money Show)

How to master all aspects of this low-risk strategy

 

Alan speaking at a Money Show event

***********************************************************************************************************************

Market tone data is now located on page 1 of our premium member stock reports and page 1 of our mid-week ETF reports.

****************************************************************************************************************

About Alan Ellman

Alan Ellman loves options trading so much he has written four top selling books on the topic of selling covered calls, one about put-selling and a sixth book about long-term investing. Alan is a national speaker for The Money Show, The Stock Traders Expo and the American Association of Individual Investors. He also writes financial columns for both US and International publications along with his own award-winning blog.. He is a retired dentist, a personal fitness trainer, successful real estate investor, but he is known mostly for his practical and successful stock option strategies.

15 Responses to “Generating a 3-Income Stream Put Trade: A Real-Life Example with ZIM Integrated Shipping Services Ltd. (NYSE: ZIM)”

  1. Bob February 26, 2022 3:02 am #

    Alan,

    Would appreciate an explanation for following situation:

    Own SBLK (Starbulk Carriers) . Sold 29 call strike with 3/18 expiration.

    Goes ex-divi 3/2 ( next Tuesday).

    Dividend $2.00
    Price close today 31.76
    Option price 2.78

    What will determine if called away on Monday, please?

    Much thanks if you find the time to explain.

    Bob

    • Alan Ellman February 26, 2022 7:42 am #

      Bob,

      Early exercise is rare but the main reason for early exercise is, in fact, an ex-dividend date, Tuesday 3/1 in this case. If our shares are sold, it will occur the day prior to the ex-date or this Monday 2/28/2022.

      Because the time value of the premium ($2.78 – $2.76 or $0.02) is significantly less than the dividend distribution ($2.00), retail investors may be motivated to exercise on Monday.

      Factors against exercise include:

      1. The contract expiration (3/18) is far from the ex-dividend date (3/1).

      2. Option buyers generally do not want to be share owners; they want to be option sellers.

      3. The stock price will drop by the dividend amount ($2.00) on the ex-date (other factors play a role in share price but a minus $2.00 is factored into the equation), as will the option value (perhaps not as much depending on the Delta factor), so option holders may want to hold the option and evaluate over the last 18 days of the contract.

      Bottom line: Exercise is possible but still unlikely. If it occurs, your trade return will be maximized, and you will have cash back to then use for a second income stream in the same contract month. Unless you absolutely want to retain these shares, a case can be made that early exercise should be embraced rather than avoided.

      Here is a link to one of the articles I published on this topic:

      https://www.thebluecollarinvestor.com/early-exercise-due-to-dividend-capture-theoretical-and-practical-applications/

      Alan

      • Bob February 26, 2022 10:13 am #

        Much appreciated

  2. Barry B February 26, 2022 9:48 pm #

    Premium Members,

    This week’s Weekly Stock Screen And Watch List has been uploaded to The Blue Collar Investor Premium Member site and is available for download in the “Reports” section. Look for the report dated 02/25/22.

    Also, be sure to check out the latest BCI Training Videos and “Ask Alan” segments. You can view them on The Blue Collar YouTube Channel. For your convenience, the link to the BCI YouTube Channel is:

    http://www.youtube.com/user/BlueCollarInvestor

    Best,

    Barry and The Blue Collar Investor Team
    [email protected]

  3. Lew February 27, 2022 3:32 am #

    Alan,

    In your book, Selling Cash Secured Puts, on page 144, you show an example of rolling an ITM put option with a 1 month return of 4.2%. My question is how to calculate the first month final return. Is it the same as the initial return (3.1%).

    Thanks,
    Lew

    • Alan Ellman February 27, 2022 3:51 pm #

      Lew,

      Yes, you are 100% correct. Regarding the example on page 144, there is a 3.1% return for the current month as the cost-to-close ($0.50 in this example) the 1st month short put is moved the next contract cycle. Since the next month short put generated $2.50, the net option credit of $2.00 ($2.50 – $0.50) is entered into the next month’s trading log.

      Alan

  4. Tom February 28, 2022 3:44 am #

    Alan,

    Will your new trade management calculator work for the pmcc strategy?

    Thanks,
    Tom

    • Alan Ellman February 28, 2022 6:54 am #

      Tom,

      The formulas we use to calculate initial and adjusted returns are different for the PMCC strategy so the Trade Management Calculator cannot be used.

      However, we have created a calculator specific for the PMCC strategy (BCI PMCC Calculator) with the appropriate formulas for both initial trade structuring as well as trade adjustments (exit strategies). The exit strategy tabs are located at the bottom of the spreadsheet.

      Alan

  5. Barry B February 28, 2022 1:00 pm #

    Premium Members,

    There has been an update to the 02/25/22 Weekly Report. The ER date for EC has been updated to 03/01/22 instead of the previously reported date. This new date has been published on the NASDAQ site but has not been confirmed on the EarningsWhispers.com website. The updated report is available on the Premium Member site. Look for the report dated 02/25/22-RevA

    Best,

    Barry

  6. William February 28, 2022 2:27 pm #

    Hi Alan,

    Question: In this very crazy market of swings in both directions up and down, and also with the market in correction territory I would like some total market protection on my investments. Example, I am thinking of selling cash secured SPY puts about 8 % below the market or would it be best to sell calls about 8% below the current price. SPY is currently trading at $437.

    As you can see I am looking for a fairly safe way to capture premium in a very questionable market.

    Hoping to hear from you

    William

  7. Alan Ellman March 2, 2022 5:49 pm #

    Premium members:

    This week’s 4-page report of top-performing ETFs and analysis of the top-performing Select Sector SPDRs has been uploaded to your premium site. One and three-month analysis are included in the report. Weekly performance has also been incorporated into the report although not part of the screening process. Weekly option availability and implied volatility stats are also incorporated.

    The mid-week market tone is located on page 1 of the report.

    New members check out our ongoing and never-ending training videos (“Ask Alan” and Blue Hour webinars). We add at least one new video each month. Only premium members have access to the entire library of these training tools.

    For your convenience, here is the link to login to the premium site:

    https://www.thebluecollarinvestor.com/member/login.php

    NOT A PREMIUM MEMBER? Check out this link:

    https://www.thebluecollarinvestor.com/membership.shtml

    Alan and the BCI team

  8. Harley March 3, 2022 6:46 pm #

    Alan,

    I ran across your #65 podcast on the 10%/20% rule.

    Do you ever use a buy stop to close a cash secured put position if the premium begins to run away from you? If so, what might the parameters be?

    Thanks,

    Harley

    • Alan Ellman March 4, 2022 7:29 am #

      Harley,

      Yes, in the BCI methodology, we have the 3% guideline. This is where we close our put sale trade if share price drops 3% or more below the put strike. This is based on a monthly expiration with a 2% – 4% initial time-value return goal range. If the time-value return goal range is less or more, we can adjust the guideline accordingly but 3% would have general application.

      Alan

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