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The ZIM Arbitrage

Two professors of Economics were walking down the road and they saw a 100$ bill left alone on the pavement. "It can't be real money because if it was real, someone would have already pick it up" one of them says. And they continue to walk leaving it there.

"The markets are very efficient and no arbitrage opportunities exists". I keep hearing these words, but choose to ignore them. If someone gives you money for free, you can look for all the reasons for why it's not real, or you can just take the Fxxxn money.


Zim Integrated Shipping Services Ltd is an Israeli based company of global container shipping. Since its IPO in Jan 2021 at 15$ a share it had a big run to over 90$.

With higher shipping costs since the pandemic, supply chains issues and high transportation costs, ZIM became a very profitable company and finished 2021 with a 38.6$ EPS (more than double its IPO price).

On march 2022 it declared 17$ dividend.


The first thing you need to do when you trade options and there is a dividend, is to check if it is a regular dividend (which mean no adjustments to the options strikes) or is it special dividend (adjustment to the options strike). In this case there was no adjustment.


Now lets do some arbitrage:




The following screen shoot shows that you can buy the stock at 76.65 before the dividend Ex-date and also buy put 70 (for expiry date after the Ex-date) for 9$.

This means you actually buying for 59.65 (+17$ you will get dividend) and selling for 61.


You can buy 100 shares for 7665$ + 1 put 70 for 900 $, get 1700$ dividend + sell 100 shares for 7000$. Total profit of 135$ or 1.5% profit.

Thank you very much.


This even gets better, since you are not selling the full contract (not selling call70, because it will most likely be exercised before the Ex-date), thus if the stock goes above 87$ (70+17) you will be long the stock with no risk added and can have more profit than what you made in the arbitrage initially.


So how much of such opportunity are you willing to take?

Not to insult the professors of economics, I would do as much as I can.



The margin requirements for such a trade, which is free of risk, is low (less than 10%) so you can leveraged up.


And when the market had a bullish sentiment for shipping stocks, I could easily close the position with even more profit, as the puts gained some extra time value when the stock went up.



Two last important notes:

  1. You should always consider the tax issues with dividend and if there is a tax withholding that you can get back according to the ruling of the Tax Authority.

https://investors.zim.com/news/news-details/2022/ZIM-Updates-on-Withholding-Tax-Procedures-on-April-2022-Cash-Dividend/default.aspx


2. Such trades are rare so don't expect to find them every year. But when you do find one, don't hesitate to take advantage and act.

Or as my trading coach Dr. Van Tharp used to say:

  1. See the signal.

  2. Recognize that it's familiar.

  3. Feel good about it.

  4. Take action.

If you are slow to act, you might lose the opportunity.


Cheers

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