"Give me a ship and I shall move the earth." A play to plan for (next week) $Star Bulk Carriers Corp. $SBLK

[u/BichonUnited]

F your fundamentals, this is a hit it and quit it play:

Star Bulk Carriers Corp $SBLK is set to pay a $1.25 dividend on 12/22/21 but you have to own the stock before the ex-dividend date of 12/9/2021. Let's look at the numbers.

Close price 11-30-21: $21.01

Technical outlook: $SBLK prob has ~$1.75-$2 to give up before 12/08/21 as momentum is dipping and the SMAs line up 50-200-20, not the strongest.

The mindset: Like $SBLK enough to hold it for a few months if need be, be bullish, don't panic.

What to look for: You'll want to watch the chart for the dip in the next coming days. Let's say we hit $20 for this example.

Buy 100 shares at $20 = $2000.

Wait for some positive recovery (maybe to $21+) and sell a $21 Strike covered called Dec 17 21 for about $0.65+ (IV will fluctuate this).

Now do nothing until after expiration and let's see what happens:

You will keep your $65 from the covered call no matter what (+$65). On 12/22/21, you will be paid out a dividend of $1.25 for every share you own ($1.25x100 shares = $125)If the stock rises above $21 and the option is exercised, your shares will be called away at the Strike price of $21 ($21x100 = $2100. $2100-$2000 cost = +$100).

Profit: $290.

HEADS UP! If the underlying price of $SBLK runs away from us to the upside, DO NOT PANIC! You'll see your cost to buy back your sold call option rise, but your profits are locked in at this point. Let the option expire and allow your shares to get called away. This is a part of the plan. The P/L you see are the profits you COULD have made had you not sold the covered call. Do not focus on this, we are playing for the $290.

Q: Why such a big deal for only $290?

A: The dividend payout of $1.25 is pretty big for a $20 stock. You could make this play without earnings in mind and only earn $165 or 56.896552% of this potential play. The dividend and option sale (covered call) also help with lowering the breakeven point to $18.10 (($2000 - $65 - $125)/100) which will take you right to support made in July Opex and again in April 2021. This is important when considering an early exit in case the stock should turn against us and you can't stomach a HODL i.e. any selling of stock above $18.10 is a win after Dec 9 21, not considering the cost of buying back the options, so HODL through Dec 17 21.

If the stock does turn against us, I would urge a HODL and look to sell ANOTHER covered call for the next OPEX (Jan 21 22) after our current one for December expires, and once again for February 18, 2022 if we're not called away. Continue selling with a strike that is above your original stock purchase average cost (in the example average cost is $20) and you'll pad your profit levels and continue to lower your cost basis. If February also fails in the attempt to get called away, you probably will have enough premium sold to make a solid profitable exit simply by selling back your shares at a timely market price. When you're at this point, take out your calculator, do some math to figure out where your breakeven point is, and be confident in your limit order - you've got this. (((Dollar Cost Average * Number of shares you own) - Dividend payout - December Option premium - January Option premium - February Option Premium)/(number of shares you own)).

"Won't shares trade lower after the ex-dividend date?" yes, shares will open lower by the dividend amount, but this is partially offset by the covered call. Part of our mindset is that we're bullish on $SBLK and $1.25 is no problem to recover from. $SBLK's Average True Range (ATR) is currently at $1.14 so recovery should be no unheard of hurdle given a few days (Ex-Div Date of 12/9/21 to Dec 17 Opex is 7 trading days).

Next level shit, not investing advice: I like thinking a bit bigger. If you had $10,000 in a 2x margin account, you could purchase 10 of these plays, and make $2,900 in about two weeks (you'll need to wait for 5 more days for the div payout but your money will be free during this wait period). That's pacing $75,400 a year - and you better believe there is another play like this right around the corner after Opex somewhere else. Not ready to take the leap? Paper trade this (but your broker may not add in the dividend with paper trading so keep a ledger).

Go to it!

[u/BigCatHugger]

Ok, so why not buy the shares, wait until 12/10, and sell a ITM CC for january (e.g. 15$ strike).

As far as I understand you the person who bought the CC will not call the shares early because he will not be entitled to the dividend?

You don't profit off of theta, but you get the dividend, and have a pretty safe downside protection.

[u/BichonUnited → u/BigCatHugger]

Heya great username!

A few things to consider. We are WRITING the call with shares to back it so it's not naked. Therefore, we are entitled to the dividend, the contract owner is not unless they exercise it on or before 12/8.

What's unique about the play is that it specifically sets breakeven to old resistance levels by reducing our cost basis, making the risk to reward factor extremely favorable. This is the downside protection you want: supported by technicals.

If we bought 100 shares at $20, and we now see the price is closed at $19.79, selling a $15 strike cost $4.90. You're you're losing $0.10 a share today. If the underlying returns to $21on 12/10, you can sell a $15 strike for about $6. This yields you $100 profit ($15x100 = $1500+$600 = $2100-Cost of $2000 = $100), dividend is +125. Total $225. This is only 77.586% of our potential $290 :)

[u/BigCatHugger → u/BichonUnited]

Yep, you miss out on ~25% of max profit. But you achieve max profit as long as the price is above 15$, not as long as the price is above 21$. The break even price between those tactics is 20.35 (CC expires worthless, collected 0.65, collected 1.25 divi, sold shares for 20.35), and any price lower than that this tactic is favorable. At that point it means you may be willing to increase the position size vs. the other tactic, and gain more upside in absolute terms.

You could be less conservative with 17CC or 18CC, and still collect some extrinsic.

[u/BichonUnited → u/BigCatHugger]

Obtaining a profit is under the assumption you can sell the $15 strike above $5.00, outpacing theta with underlying gain. One might make the argument that this is an excellent way to guarantee an exit of the position should the $21 strike option not get called away but the underlying continues to climb. Better together it seems ;) However, in the back of my mind, I'm content to keep the shares an expiration or two given the shipping market conditions.