This trade has two legs.
The chart is ugly.
Sell a cash secured January 2023 $4 strike leap and collect $3.40.
Use the cash to buy GGN at the current $3.40 ask and collect 22 monthly 3 cent per share dividends and reinvest the dividends in GGN.
Assuming GGN continues to pay the 3 cent per share per month dividend for the next 22 months the stock is essentially free at any price. this is the primary risk factor in this two way trade.
GGN trades upwards dramatically on Mid Eastern oil concerns. trading up to $4.20 last year when the Iranian General was killed. It is very liquid. The caveat is to watch the November anticipated 2022 distribution declaration. It is wise to be out for a brief period anticipating the declaration. The dividend is declared for the next three months and is anticipated to be the same for the remaindefrf of the year. Assuming the 10% plus dividend on the cash received and the cash securing the put the stock when put to the put seller at any price is essentially free.
SNDL has the cash on hand from the recent secondary offering of $74.5 million to survive two years at the current burn rate. In addition, there were warrants in the secondary offering. An acquirer logically would own these warrants as an entry point for a potential buyout iin a fast consolidating industry.
If bankrupt in two years the common would logically trade OTCBB at the usual 25 cents for additional downside protection.
Athis is an oil gold volatility hedge combined with a potential buyout opportunity with the stated risks.
The chart is ugly.
Sell a cash secured January 2023 $4 strike leap and collect $3.40.
Use the cash to buy GGN at the current $3.40 ask and collect 22 monthly 3 cent per share dividends and reinvest the dividends in GGN.
Assuming GGN continues to pay the 3 cent per share per month dividend for the next 22 months the stock is essentially free at any price. this is the primary risk factor in this two way trade.
GGN trades upwards dramatically on Mid Eastern oil concerns. trading up to $4.20 last year when the Iranian General was killed. It is very liquid. The caveat is to watch the November anticipated 2022 distribution declaration. It is wise to be out for a brief period anticipating the declaration. The dividend is declared for the next three months and is anticipated to be the same for the remaindefrf of the year. Assuming the 10% plus dividend on the cash received and the cash securing the put the stock when put to the put seller at any price is essentially free.
SNDL has the cash on hand from the recent secondary offering of $74.5 million to survive two years at the current burn rate. In addition, there were warrants in the secondary offering. An acquirer logically would own these warrants as an entry point for a potential buyout iin a fast consolidating industry.
If bankrupt in two years the common would logically trade OTCBB at the usual 25 cents for additional downside protection.
Athis is an oil gold volatility hedge combined with a potential buyout opportunity with the stated risks.
Comment:
I wil also use BPt leap puts as a place for the cash recived on the SNDL cash secured put sale. I particularly like the BPT September $2.50 strike puts at a current 50 cents asked. that is 25% return on the SNDL cash for 193 days assuming BPT stays above $2.50. The current oil spike has BPT common selling for $4.41 ask. BPT Prudhoe is a wasting asset depleting oil royalty trust established by BP. I have been i this name before and revisit it as a way to decrease the SNDL exposure. Worth a look. all the best
Comment:
.
.A Van tharp quote that applies to this trade...
"A low-risk idea is an idea with a positive expectancy that's traded at a position sizing level that can survive the worst case contingency in the short run and realize the long term expectancy." Assuming the stock goes to zero and trades OTCBB, there is no cost in the trade. The initial risk is 60 cents. I traded out of the GGN last Friday and gained 6 cents per share.
.A Van tharp quote that applies to this trade...
"A low-risk idea is an idea with a positive expectancy that's traded at a position sizing level that can survive the worst case contingency in the short run and realize the long term expectancy." Assuming the stock goes to zero and trades OTCBB, there is no cost in the trade. The initial risk is 60 cents. I traded out of the GGN last Friday and gained 6 cents per share.
Comment:
. therefore as of 3/15/2021 my risk has been lowered by an additional 6 cents to 48 cents per share ($48 per contract). Assuming an OTCBB bankruptcy - an illogical thought with the curreent equity raise - my actual delisitng exposure is currently 23 cents with an assumed OTCBB share that would be 25 cents in bankruptcy court if put to me. I am nicely working the cost to zero and free stock at any price put to me.
Comment:
.
I exited the GGN trade last Friday one day before the ex-date. the stock moved upward on the ex-date and down immediately after. I will buy the GGN back in two weeks anticipating the distribution rise in price to the usual discount to NAV. I have no training stop on the SNDL put options. I look at this as having received $3.52 in put premium with the GGN distributions gained with the put cash. Moving nicely.
I exited the GGN trade last Friday one day before the ex-date. the stock moved upward on the ex-date and down immediately after. I will buy the GGN back in two weeks anticipating the distribution rise in price to the usual discount to NAV. I have no training stop on the SNDL put options. I look at this as having received $3.52 in put premium with the GGN distributions gained with the put cash. Moving nicely.
Comment:
I have no trailing stop - typo.
Trade closed manually:
This idea had legs for a month. i took the SNDL premium and put it in GGN. I exited the trade today at a slight loss on the SNDL puts with a gain on the GGN. My reason was simply that I do not like it when a company does something with the cash on hand that is not directly related to the core business. That is not to say a company should not do research. SNDL decided to put capital in to a partnership with another entity. When the cash leaves the control of the company and is off balance sheet I get nervous - Enron nervous.
Comment:
I want public disclosure, product development, sales development and transparency. without cssh on the balance sheet transparency I exit every time - even this one with a chance to continue to invest the fat put premiums I collected. It ws a short term loan for a decent leveraged return. Sadly I exercise my usual discipline and exit from my experience. Experience is what I got every time I did not get paid. Without adequate transparency this may be great or it may be a small cap "funnel" for shareholder money.
Comment:
I hated to let go of this leveraged play but I must. Time to move on. be safe out there.
Comment:
I continue to monitor even of not involved. where is the cash taken off balance sheet and invested in a private partnership immediately after the secondary offering? Secondary offering cash can do great or terrible things to a business. Whenever there is a secondary offering I try to get management to tell me where the cash will be invested. In this case - no response and the cash went into a private partenrship. is this Enron or something great? No transparency. the common is 83 cents.
GGN is now trending upward into the ex-dividend and record dates. GGN is $3.43 bid, The monthly distribution is 3 cents per share. A good place to watch and exit before the distribution. I have now traded this 3 times since selling the $4 strike call in January at $3.40. I sold another tranche of these for $3.30. My net cost currently if SNDL is put to me is 54 cents per share. The SNDL common is trading at $1.19 bid.