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.

Related posts:

  1. Bought +3 CVE.TO JUL 30 Puts @ 1.75, mark $30.10
  2. Bought +3 CVE.TO 10JUL17 Puts 30.00.MX @ 2.45, Mark $28.64
  3. Sold 4 MFC 10OCT Puts 17.00 @ @1.43, Mark $16.27, Loss -0.5%
  4. Sold 3 PAA.TO 10DEC Puts 25.00 @ $2.25, Mark $24.62, Loss 0.3%
  5. Sold 3 ABX 10OCT Puts 46.00 @ $4.15, Mark $43.97, Breakeven exit
This entry was posted in Stocks and tagged CVE.TO, Energy, exit, options, RRSP, TSX. Bookmark the permalink. Post a comment or leave a trackback: Trackback URL.

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  1. By May 2010 Trading Review | Quantisan.com on June 4, 2010 at 11:21 am

    [...] closed two trades in May totalling a decent gain of 10% in my RRSP trading account.  The first was shorting CVE.TO, which made me 10%.  The second was long TCK/B.TO, which ended in breakeven.  I took the second [...]

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