I was staring down a dividend driven early exercise event in CNQ puts.
music selection: “In Bloom” — Nirvana
Back on 9NOV2016, I opened a synthetic short in Canadian Natural Resources (CNQ). This is an oil and gas upstream company that is heavily invested in Canadian Oil Sands projects. The oil sands are expensive to operate and produce what is probably the lowest quality crude oil on the planet. They made sense in a Peak Oil environment and are an albatross in the new shale drilling paradigm. I expect this company to eventually trade much lower as not only do they have low quality assets, they have a long history of executing the mining process inefficiently. But oil prices have been resilient and the position keeps moving against me after several brief forays into the black.
The stock goes ex-dividend on Monday and my long puts were showing less time value remaining than the value of the dividend. That is a sure recipe for early assignment of shares. The borrow rate to short CNQ is punitive so I don’t want to be short the underlying. Instead, I’m closing the position. I bought to close 30 strike short calls at the January expiry for 4.75 a share. These were originally sold for 4.58 a share resulting in a 17 cents a share loss. Times two contracts, that is a loss of 34 dollars.
I also sold to close a long put originally purchased for 4.35 a share for a paltry 10 cents a share. The 4.25 a share loss times two contracts comes to an 850 Long Term Capital Loss. My total loss across the position is 884 dollars realized over 394 days. I may revisit this trade after the wash sale lockout period expires. In the meantime, I’m glad to no longer have capital tied up in a trade that was moving sideways at its best. I’ll have new options trades to report on Monday.
Devour your prey raptors!