ZIONS BANCORP: Journey To Jerusalem (+17%)
The Music Stops at Seventeen.
Executive Summary
Burning Bushes meet Zions Bancorp.
Murky and illiquid +17% episode.
1. Recap Situation
We discovered how Sinai Bushes burn while diving deep into Zions Bancorporation's (ZION) books. We were amazed at the sheer prudence of their banking operations in the face of their market value crash and found that most listed regional banks have no real issues in the long run.
We also belittled Moody's and noisy investment jesters trying to act alpha.
Check out the original BrainDozer article below.
Our expected value on equity for a somewhat murky episode was +28%; we converted it to an actual return on equity of +17% in six weeks.
2. Why Now
Since we do not believe that ZION will face any further troubles even if the Fed were to hike a couple more times, we believe the bottom is in. A potential bounce off the most recent Fibonacci retracement is not unlikely in the near future.
Our options contracts expire in 23 days; hence, we are closing the trade.
3. Trade Execution
To close the short risk-defined straddle, we invert and go long the same thing.
3.1 Trade Entry - May 12, 2023
The options chains weren’t the most liquid, and the bid and ask spread was large. We were therefore filled slightly below the mid-price level at 5.80.
Total: 5.80 Credit.
3.2 Trade Exit - June 28, 2023
We were filled at an average price of 5.10, slightly above the mid-price level.
Total: 5.10 Debit.
3.3 Trade Return
The absolute return on this trade is
5.80 - 5.10 = 0.70
The equity at risk was 4.05, resulting in a return on equity of
0.70 / 4.05 = 17.3%
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