So in March right before I decided to open the trust, I was strapped for cash and was seeing my holdings fall into extreme value territory. Therefore I was looking for ways to raise cash without liquidating holdings. Some of the things i was listening to at the time were:
Focused Compounding - Ep 183. Trump Reopening The Economy and Buying a Diversified Basket of Distressed Stocks
MoneyWiseSmart - Cashflow with Options
The idea I came up with at the time was to sell put options on high volatility stocks, namely Carnival Cruises. The strategy I wrote up at the time looked like the following:
So with this strategy in hand I was specifically looking at carnival cruise lines in mid-late march. This idea came to me indirectly from 2 particular sources.
Following my research on Options after Moneywisesmart I was posting in their Facebook forum as you can see below:
My figures in the post looked like the following, ignore the dollar amounts it was just a arbitrary 1000 shares for illustrative purposes.
And here is the comment section in response.
What followed were a series of trades using Carnival puts with a payoff profile like the following.
In laymans terms what I was doing here was that for every put I wrote I received $1 in return for cash security of $2.50. Of course if i did get exercised my effective cost basis on Carnival shares would of been $1.50. This is when Carnival had a tangible book value of $31 per share. I believed that even with their troubles there was SIGNIFICANT margin of safety here, knowing that I only had a limited time frame I had to satisfy.
The actual trades I ended up doing were shorter expiry because I think it lowered the risk substantially. I was closing these out sooner than expiry too as the price of the put moved in my favour. A print out of the brokerage statement including ROI for each put is below:
If you’re wondering why there is multiple trades, I was compounding the float by placing incremental orders with the cash return + principle from the prior order.
Considering these varied from 1 day to 10 days, I would say these returns are incredibly attractive, and quite frankly may well be a once in a lifetime occurence. This dwarfs any other investment I’ve done since in terms of sheer success.
Hopefully you enjoyed reading.