Oil: Futures Arbitrage and Protective Collars with Distressed Companies

Oil futures persist to trade in contango proceeding their historical decline to negative prices on April 20. This presents an arbitrage opportunity where one can buy the overabundant commodity now, enter into a futures contract, and sell on a later date at a significant premium. Conversely, one might be incapable of completing such a trade due to brokerage account restrictions, or other complications. Therefore, if one is seeking to capitalize on this opportunity, but unable to perform the arbitrage, then they can simply acquire shares in an oil company, such as DNR with a protective collar or merely protective put-options. Denbury Resources which trades at $0.25 was $1.02 preceding the pandemic and supply war between Russia and Saudi Arabia; thus, if it reverts once the quarantine ends and ordinary trade relations resume, the OTM Call option will negate the ITM Put option insuring the positions, or the appreciation in share price should exceed the cost of the protective put options.