Looking back to 177 days ago, PS Business Parks, Inc (PSB) priced a 1,300,000 share secondary stock offering at $79.25 per share. Buyers in that offering made a considerable investment into the company, expecting that their investment would go up over the course of time and based on early trading on Thursday, the stock is now 7% above the offering price. It should be noted that investors at the secondary have collected $0.94/share in dividends since the time of their purchase, so they are currently up 8.2% on their purchase from a total return basis.
Investors who did not participate in the offering but would be a buyer of PSB at a cheaper price, might benefit from considering selling puts among the alternative strategies at their disposal. One interesting put contract in particular, is the October put at the $75 strike, which has a bid at the time of this writing of 25 cents. That would result in a cost basis of $74.75 per share before broker commissions in the scenario where the contract is exercised. If the contract is never exercised, the put seller would still keep the premium, which represents a 0.3% return against the $75.00 purchase commitment, or a 0.7% annualized rate of return (at Stock Options Channel we call this the YieldBoost).
Secondaries can often present buying opportunities for bullish investors interested in purchasing shares, because the sudden extra supply of stock tends to require that the offering be priced at an attractive discount to where the stock had previously been trading before the offering announcement. That can also introduce near-term volatility which improves the premiums a put seller can achieve. Selling a put does not give an investor access to PSB's upside potential the way owning shares would, because the put seller only ends up owning shares in the scenario where the contract is exercised. The chart below shows the one year performance of PSB shares, versus its 200 day moving average: