Today our short position in Protolabs (PRLB) was closed on a standing limit order to purchase a closing contract. We sold quasi-insurance to PRLB shareholders on 30DEC2020 following a sharp reversal in PRLB share price. In the first 23 days of December 2020, PRLB soared from $138 to $188 (roughly). The following three trading days were not kind to PRLB which closed 29DEC2020 at $158.
Our cash-covered put option contract (strike: $115; expiration: 19FEB21) in the volatile PRLB market sold for $275. The premium yield ($2.75/$115) was about 25% on an annualized basis while the strike was 73% of the day’s closing price for PRLB. By closing the position a month early (for the low, low price of $40.69) we netted $233.61 or 85% of the premium in 22 days. The net was 1% of the collateral or 16.9% on an annual basis.
I really like PRLB’s business. They specialize in rapid manufacturing for prototypes and short-lead needs. Moving into 3D printing has expanded their business and provides confidence they’ll be able to maintain their value-added specialization through technological advances. I’d love to add them to our portfolio. Had our put option distributed shares to us, the cost basis would have been around $112 per share but today the shares trade close to $195. Closing this contract returns $11,500 to our available capital and the hunt continues for the next opportunity.
