As has been the case for much of 2022, last week there were exciting rallies and nasty sell-offs. And while the S&P 500 fell 1.13%, the Dow lost 0.94%, and the Nasdaq declined 1%, big picture the market handled an avalanche of bad news last week very well. Maybe, just maybe, the market is in the digesting bad news stage.
Cabot Profit Booster Issue: June 7, 2022
Market Overview
As has been the case for much of 2022, last week there were exciting rallies and nasty sell-offs. And while the S&P 500 fell 1.13%, the Dow lost 0.94%, and the Nasdaq declined 1%, big picture the market handled an avalanche of bad news last week very well. Maybe, just maybe, the market is in the digesting bad news stage.
This week, in an effort to keep the Profit Booster portfolio diversified, we are adding a global shipping play.
The Stock – ZIM Integrated Shipping (ZIM)
Why the Strength
As China’s main industrial hub reopens following Covid lockdowns, ports around the world are expected to see a shipping traffic surge due to a huge backlog. ZIM Shipping (ZIM) is one of the world’s largest container shipping liners and leases most of its fleet on shorter-term contracts (which lowers costs and increases flexibility, though it does open the firm to any dip in charter rates), using “eco-friendly” charter vessels and technology to optimize its cargo mix.
The company made notable progress on several initiatives in Q1, including the securing of 17 newbuild “clean tech” ships (to meet new environmental standards due in 2023) with long-term charter agreements, to be delivered in the coming years. These new ships will have a faster propulsion system, allowing them to cut shipping times and it should allow ZIM to charge higher premiums; plus, most will be LNG-powered, making them more carbon and cost efficient. ZIM also ended negotiations for one-year contracts on the Asia-to-U.S. shipping lane (45% of its total volume).
Despite the China-related shipping backlog, ZIM was still able to grow its carried delivery volumes 5% in Q1 from a year ago at an average freight rate that was 100% higher, while increasing its fleet size by 10%. All of that led to record revenue of $3.7 billion, up 113%, as per-share earnings of $14.19 beat the consensus by $1.38. And because the firm pays out 20% of net income per quarter (and 30% to 50% for the year; there’s no net debt here), the quarterly dividend came in at $2.85 per share. Looking ahead, management expects to generate full-year EBITDA of around $8 billion (up 21% if realized) while continuing to pay out big dividends.
Technical Analysis
ZIM spent the last four months of 2021 bobbing and weaving between the 45 and 60 levels, basically consolidating its prior rally and paving the way for a series of higher highs that kicked off in January and peaked in mid-March at 90. Shares plunged from there before finding a bottom around 50 in late April. The turnaround has been rather choppy, but every dip has found support, and now the stock is in the upper reaches of its range. STOP - 55
The Covered Call Trade
Buy ZIM Integrated Shipping (ZIM) Stock at 67.5, Sell to Open June 67 Strike Calls (exp. 6/17) for $2.50, or a Net Price of 65 or less
Static Return: $200 per covered call (3.07%)
Breakeven: 65
Covered Call Return (if assigned): $200 per covered call (3.07%)
Please note, the stock and options prices will be moving throughout the day, so these prices are simply an approximation of prices that you should be able to achieve.
However, the important component of this equation is that the stock price paid, minus the premium received via the call sale, equals the Net Price, or 65 less. (In this case 67.5 minus 2.50 = 65. Or another example is you could pay 68 for the stock and sell the call for 3, which also equals 65)
For every 100 shares of stock you buy, you can sell 1 call. For every 200 shares of stock you buy, you can sell 2 calls. And so on …
Open Positions
If our stop is hit, I will send an alert giving detailed instructions on how to exit the trade. But don’t get too worried about setting the stop. I will manage that for you.
| Stock Name and Symbol | Price Bought | Current Stock Price | Stop | Option - Price of Call Sold | Current Option Price |
| EQT Corp. | 42.50 | 48.50 | 31.5 | June 42 - $4.10 | $6.50 |
| Delek (DK) | 25.00 | 33.00 | 20.0 | June 25 - $2.15 | $8.00 |
| Halozyne (HALO) | 42.85 | 44.50 | 35.5 | June 42 -- $2.45 | $2.50 |
| Bumble (BMBL) | 25.50 | 32.50 | 21.5 | June 25 -- $2.50 | $7.50 |
| Dollar Tree (DLTR) | 160.25 | 157.00 | 139.0 | June 160 -- $5.30 | $3.00 |
The next Cabot Profit Booster issue will be published on June 14, 2022.
Analyst Bio
Jacob Mintz
Jacob Mintz is a professional options trader and editor of Cabot Options Trader. Using his proprietary options scans, Jacob creates and manages positions in equities based on unusual option activity and risk/reward.
Jacob developed his proprietary system during his years as an options market maker on the floor of the Chicago Board of Options Exchange, where he ran several trading crowds for nearly 10 years.
After a successful career on the trading floor Jacob was tasked with setting up a trading desk at a top-tier options trading company, trading against the most sophisticated hedge funds and institutions in the world.
Today Jacob trades for himself, coaches and teaches about options trading, and runs our Cabot Options Trader, Cabot Options Trader Pro and Cabot Profit Booster advisories. Jacob lives in North Carolina with his wife and two kids who keep him very busy with their sports and social calendars.