Cenovus Energy Inc T.CVE

Hedgeing oil is like selling your cve stock @ $10.00

[soundandfury]

And then the cve stock rises to $20.00..........if your average cost was say $6.00 you made a $4.00 profit but if you had held your shares you would have got $20.00 for a $14.00 profit instead of $4.00 realized profit.................my 2 cents on hedge losses

[Maxmoe]

Ughh. I'm almost ready to say frack it, just sell cve, but you better not buy any other oil company, mining company, agri biz,etc etc because most commodity producers use hedges to lock in high prices and protect the downside. Especially if they are beholden to banks. Cve is gushing so much cash right now they are felling cocky enough not to hedge because they've paid down so much debt. So

[Maxmoe]

Your example is very extreme. But yes, theoretically correct. If it costs me $6 a barrel to produce oil and I hedged by selling calls at $10 I'd earn 4 instead of 14 IF it goes to 20. But using the recent oil prices as the context it's more like oil is 100, I hedge my oil price with a cap at $166 (10\6 = 166\100]. Now, would you be in hysterics if oil went to $333 (20/10 = 333/166] and you

[mrbb]

in CVE case, most of the upside would go to conocophillips as part of the acquisition deal. Have Conocophillips finish selling their CVE shares?

[mrbb]

close but not exactly. there is a cost paid to close the hedge contract early before expiry. In this case, cve pays some out of pocket money to prevent further opportunity cost. IE CVE must have seen future gain from higher oil prices is greater than the premium to cost the contract early  Correct me if i'm wrong about this.