CRF / CLM Exposure
CRF continues to chug along at 90+% premium to NAV. Its sister fund CLM is close behind with an almost 80% premium to NAV. I am considering shorting CLM as well soon once its premium gets closer to 90%. CLM is also more attractive in that it is much more liquid than CRF. However, all of these actions would give me considerable short exposure to the SPY, much more than I would like. One of the major risks to this strategy is a massive jump in the NAV which would close the premium spread. I have recently started looking into some Dec '09 SPY calls in order to hedge against my short positions.
Here's a back-of-the-envelope snapshot of what my positions would roughly look like afterwards:
CRF - $19 * 1000 shares short = -$19,000
CLM - $9 * 1000 shares short = -$9,000
NAV - ($19,000 = $9,000) * 50% = $14,000
SPY '09 155 Call - $1,700 ($150 * 100 = $15,000 SPY exposure)
The one SPY call covers the NAV of the shorts, which SHOULD eventually result in a profit of $19,000 + $9,000 - $14,000 - $1,700 = $12,300
I will need to keep a sizable cash cushion to protect against further widening of the spread as well as a dreaded short squeeze.
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2 comments:
Do any brokerages or CRF itself have CRF available to short? I have been short CLM thru Scottrade and have paid out more dividends than the premium has dropped so far.
Hi. Sorry for the late reply. I didn't know how else to get in contact with you. A lot of it depends on the premium and price at which you entered the short position. Seems like CLM's premium has been roughly 50+% over the past few months and is only starting to go back down. I waited close to 6-8 months last for the CRF premium to close, but was prepared to wait for up to 2-3 years. CRF remains my short of choice considering the insane 100+% premium, but it is tough to find short. Good luck!
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