I know who it is before I even answer the phone.  At 9:40AM, the market has just opened, and I already know that at least one of my short positions has been covered…

“Hello?”

“Hi… this is [broker] calling to inform you that there was an SEC mandated forced buy of 1 share of CYN from you account…”

Seriously!  Seriously?  1 share?  You’re going to pawn me off one share so that my position is now 49 shares?  Who will want me to buy 49 shares from them?  Yuck.

So my 1 share was bought at $49.85.  I decided to cover the entire position later in the day at $49.55.  Seeing my thesis erode, I would liked to have covered in the high $40s, perhaps a dollar or so lower.  In review, the FDIC-Imperial deal to CYN was clearly a blow to my short position; the deal was instantly accretive to City National’s book value.  Further, I now recognize that I may not have had the right stock for the play–I wanted to profit from a fall in California banks, thinking all would suffer (which still might happen).  However, even though CYN is in a losing region, it is probably the best of a bad lot.  Whether or not this thesis eventually plays out is no longer worth my coin.  At this point, I take the loss and move on.

From a portfolio perspective, I wanted to keep a similar amount of negative exposure to replace the covering of CYN.  So, I purchased two put options on SSO (the double levered S&P500 ETF).  These were the June $44 contracts, at $8.00 each.

Even in a loss, I still keep score:

3-Aug CYN short 40 40.66  $   1,619.35
18-Nov CYN dividend 40 0.1  $        (4.00)
20-Nov CYN bought to cover 40 37.45  $  (1,505.00)
18-Dec CYN short 50 41.22  $   2,053.94
2-Feb CYN bought to cover 1  49.85  $       (56.85)
2-Feb CYN bought to cover 49  49.55  $  (2,434.98)
           $     (327.54)