ZIM Zooming Down - Update 2

ZIM 6/10/22 Daily Chart

Yesterday's post included "it seems very likely we'll get a higher than expected inflation number. If we do, then that puts more pressure on the Federal Reserve to increase short term interest rates higher and faster. That should be very bearish for the market.". That's exactly what happened. I didn't watch our Put value continuously, but I did notice our profit got as high as $350. It may have been even higher.

Soon as the CPI Report came out at 8:30am ET this morning and the equity futures started tanking, I knew we didn't need our June 60 Call hedge anymore, but the option market didn't open until 9:30. So I entered a limit order to sell the option for at least $10. At 8:56am ET I sent this Tweet:

"CPI report was worse inflation than expected, as we predicted. ZIM should drop more. Entered order to sell the hedge for at least .10"

When the market opened at 9:30 our June 60 Call sold for .48, so we only lost .60 - .48 = .12 x 100 shares = -$12. Cheap insurance to protect our $590 position.

Near the Close, I had to make a decision. The voice in my head was insisting I sell and capture the profits while I can. I don't want to hold over the weekend and wake up Monday to a loss because ZIM announced they're being acquired (just made that up), or some other bullish news. What to do?

Today we formed a Doji candle below yesterday's low but near it. If, on Monday, we gap up a little at the Open and make a significant green candle, then we'd form a 3 candle pattern called a Morning Star. And since Stochastics are now oversold, this pattern would be very bullish. And volume has diminished. 

Also, we're sitting right on the 50% Fibonacci level. It would be normal for this level to provide support. However, if you look left, you'll see we already bounced off the 50% Fib on 4/25/22. Price could certainly bounce again, but often once you've paid your respects to a support level you don't need to pay tribute again.

All of the points above give credence to the greedy, paranoid voice in my head saying "sell, sell, sell!". However, this is still a bearish setup in a bear market. Chances are we will continue down on Monday. But maybe it would be a good idea to take something off the table. I thought about a good way to do that and came up with this: Roll down the option. Here's how I did that:

I sold our July 55 Put for 5.90. This captured 5.90 - 3.20 = 2.70 x 100 shares = $270 in profit.

Then I bought a July 40 Put for .98 x 100 shares = $98.00. If we lose that whole option, then we'll still have $270 - 98 = $172 in profits. So we "rolled down" the option strikes in our position from 55 to 40, and thereby captured some good profit but stayed short to benefit from any further drop in the ZIM stock price.

Our current balance is $270 - 12 = $258 in hard money profit. Plus we have a July 40 Put worth $98.