Bought +3 CVE.TO JUL 30 Puts @ 1.75, mark $30.10

I made my first trade in my RRSP! It is a short on Cenovus Energy (CVE.TO) via buying puts options. I chose the July expiry with the intention to dispose of this position in May. Two reasons for that. 1) Before time decay accelerates (about 60 days prior to expiry), and 2) before the summer starts (low volatility in summer, premiums are discounted).

The following facts/opinions constituted my decision for this entry.

1. TSX index is toppy according to weekly RSI
2. TSX is losing steam this week versus the S&P 500 (see Figure 1), but this is probably due to the forex market
3. MX Implied Volatility Index is testing 10.00 support again
4. Energy sector is weakest of all 3 prominent sectors on TSX (Energy, Financial, Material) in intermediate term
5. Oil is showing negative divergence on weekly chart
6. U.S. dollar index is in uptrend and testing support at 80
7. USD/CAD is testing major support at parity
8. CVE.TO looks weakest amongst top 5 traded Oil/Gas on TSX (for liquidity)
9. Negative divergence as seen on CVE.TO chart (Figure 2)
10. $30 is a strong resistance level (Figure 2)
11. CVE.TO v. Crude Oil chart shows an intermediate term steady down trend

TSX Composite v. S&P 500

Stop: $32.

Target: $27.

Commission paid is $12.95 on this trade (double that for a round trip).

A rough estimate of the premium by May expiry if CVE.TO is priced at $32 then would be $0.80. Thus, I am risking about $240 of my $8,000 account in this trade on a worst case scenario. Which is 3% of my RRSP account.

This is significantly more than my usual risk appetite (less than 0.2% per trade in forex trading). But any less would be pointless due to the high relative commission for options. I had the choice of shorting the market using options or leveraged bear ETF. The deteriorating value of a bear ETF made it less favourable for holding for more than a few days. So I traded options due to a lack of choices in my RRSP.

Anyway, that’s my thought on this. Yet nothing matters but the price. Let’s wait and see how this goes. I plan to make one trade per quarter in my RRSP. This one is for Q2.

Cenovus Energy Inc (CVE.TO)

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