Bought 3 CM 10OCT Puts 74.00 @ 5.65, Mark 72.30

I am doubling my CIBC (CM.TO) short on test of $72.50 resistance about half an hour before the close. $72.50 is the 50% retracement level on that big dive in beginning of May. See Figure 1. Moreover, $72.50 is the bottom of a congestion zone in middle of May.

CIBC (CM.TO)

The trading volumes in CM.TO and the TSX index are weak. So I am betting that the market won’t follow through with this upward move.

Mental stop is $73.00 and $74.00 as hard stop.

Bought 3 CM.TO 10Oct Puts @ 5.00, Mark $74.02

I’ve been watching CIBC (CM.TO) for a few months now. CM finally presented a shorting opportunity that I took today. Figure 1 speaks for itself. Furthermore, the lackluster rally in EUR/USD after the ECB’s vouch for confidence is encouraging for the bears.

CIBC (CM.TO)

$74.00 – $74.50 is a strong resistance for CM. There are three scenarios in which this trade can play out. CM can go up, go down, or move sideway.

If CM move upward, I will watch the push above $74.50. My current exit stop is at $75.00 (about $1 on the premium). However, as this is an options position. There is a time decay factor working against me. As such, I will decrease my exit stop by $1.00 on the share price every month to compensate. For example, by mid-June, my exit stop is $74.00 on the underlying share price of CM.

If CM move downward, I will move my stop to breakeven if it breaks below $72.

If CM move sideway, I will give it a month’s time. If CM just consolidates around $74, I will exit by late June for a loss of $1 ($300 total) on the premium.

My targets are $70, $68, and $65 as shown on Figure 1. I will tighten my stop passing each support level.

My ideal loss is $300 at most. That represents 3.4% of my total account on this trade.

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.

I just made a grave fundamental mistake in my CVE.TO trade

Cenovus Energy (CVE.TO) tested 27.50 support and then bounced back to break the short-term downtrend line above 28.50 or so, see Figure 1. Naturally, I don’t want to turn a profitable trade into a losing one. So I wanted to sell my puts options on CVE.TO while I can still exit at near breakeven. However, as I am new to Questrade and unfamiliar with their interface, I made the careless mistake of buying six more contracts instead of selling the six that I have!

Cenovus Energy (CVE.TO)

I realized my mistake soon afterward from checking my account. Imagine my surprise to find that I am an owner of 12 puts contracts on CVE.TO. So I wanted to cut my losses immediately. Unfortunately, the energy sector (XLF) and crude oil just broke above some key resistances and CVE.TO bumped up a few more points.

The right thing to do is to ignore my unfortunate losses and just exit the position, as that was what I intended to do. But I didn’t.

I decided to not panic and analyze the stock yet another time. CVE.TO is definitely weak. It is lagging behind others in the sector. Other energy companies are breaking above resistance levels but CVE.TO is still below its 29.50 resistance. Yet, the fact is that the trend in the sector is upward. Which is very bad for me.

I am still holding this short CVE.TO position over the weekend as it hasn’t broken my 29.50 mental stop yet. I can give my bearish reasons here upon observing the tape this afternoon (e.g. Goldman Sachs Canada is dumping shares), but they would just be excuses under the current circumstances. In any case, this is an embarrassing confession as I’ve violated one of the most basic rules of trading.

This position is near breakeven on paper as of the close. But who knows what can happen over the weekend. Rather than risking 3%, which is already too much, I am now risking a maximum of 10% on this trade. What have I done…

The high commission in trading options is affecting my decision. If this were a forex position, I would have dumped it all without giving it a second thought. This is a sign for me to stop trading options altogether. It is better to stay with a long-only equity strategy in my RRSP than get eaten up by commissions or take excessive risks as I am doing now.

Bought +3 CVE.TO 10JUL17 Puts 30.00.MX @ 2.45, Mark $28.64

Update: Cenovus offers an explanation of why it tanked almost 5% today (Apr 22).

I doubled down on my short Cenovus Energy (CVE.TO) position this morning. The price of CVE.TO moved in my favour a day after my initial short entry. It then bounced back up strongly (about 2.5% rise in a day) yesterday to test $29.50. However, it has backed down since. The fact that it didn’t touch the $30 price level is a good sign. Crude Oil (CL on NYMEX) made a similar move. It tested the 50% Fibonacci resistance at 84.5 and backed down. This is again a good sign for my short as it signals the downtrend is a go.

Cenovus Energy Inc. (CVE.TO)

However, crude prices became very choppy in the afternoon today as shown in Figure 2. So perhaps there is still room to move up. I will keep an eye on the 84.50 and 85.50 resistances for crude and 29.50 and 30.00 for CVE.TO in the coming days.

Crude Oil

A couple of other signs that I watched on this addition to my short position.

1. this morning, the Bank of Canada gave strong hint that they will raise interest rate in June. However, USDCAD made a marginally new low briefly and then bounced back up above parity. This is bullish for USDCAD.
2. EnCana earnings topped estimates but the stock dived after the opening rush with at least 3 times morning volume as compared to the past five days. ECA.TO is hanging on to the 31.5 support level before noon but closed above it today. This is not a good sign for the energy sector on the TSX.

A confirmation with this down move would be a break of the recent low at $28 for CVE.TO and $82 for crude oil.