Sold 12 CVE.TO Puts @ 2.90 Mark $27.50, +10% gain

I closed my short Cenovus Energy (CVE.TO) position this morning as crude oil broke below $80 briefly and the Dollar Index rose above $84. My original target was $27 for this short. But considering the fact that I mistakenly doubled my position size, I am closing this trade a step above at this $27.50 support level (see Figure 1 for CVE.TO support lines). Furthermore, the time decay on the options premium is accelerating so I needed to sell this soon. The final profit on this position is $858.15 (after $63.80 commission), or just over 10% in my RRSP account. Although this trade is profitable, it is a horrible trade for the following reasons.

Cenovus Energy (CVE.TO)

1. I accidentally bought more contracts when I intended to sell.
2. Not correcting my mistake immediately.
3. I risked too much at 3% (of account) initially and then 10% after my mistake.
4. Peak drawdown was over $1000 (12.5%) at one time.
5. Too eager to add to my position once it moved.
6. Reward-to-Risk ratio is less than 1.0, so I threw big money for smaller gain.
7. Commission ends up eating 7% of profit away. That is too much.

As you can see, I made one, two, … seven too many mistakes in this trade. Luckily, I did manage to do some things right.

1. Patience. There were a few days when the price moved sideway. I didn’t succumb to my emotions and dump the shares when it was nerve whacking to hold onto a loss. The price was still below my mental stop so I held.
2. After the initial shock of doubling my position as the price moved away, I mentally accepted my loss and was able to study the market objectively since.
3. Didn’t take profit too early once the price moved back in my favour this week.

I won’t be as lucky every time. Learn from my mistakes and exploit on my strengths. That is the lesson from this trade.

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3. Sold 4 MFC 10OCT Puts 17.00 @ @1.43, Mark $16.27, Loss -0.5%
4. Sold 4 MFC 11JAN Puts 14.00 @ 1.74, Mark 12.96, Loss 0.1%
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