Option Value Analysis on CIBC (CM.TO) April 2010 Expiration

Warning: Top/bottom picking is a dangerous art. I don't intend to trade on this information myself. I did this out of pure curiosity. The Canadian banks are an interesting phenomenon. Are they just hiding dirt under the rug or are they really as good as our government say? Mish Global Economic Trend Analysis posted a bearish view on California v. Ontario. Furthermore, The Baseline Scenario discussed [why the strength of our banks is an illusion created by our government][]. As such, on both a technical and fundamental viewpoint, share prices of our financial sector is way overbought. Of which, CIBC (CM.TO) seem particularly screwed as its stock price hasn't been able to join in the unreal rally of late. That sentiment seem to be confirmed with an option pain valuation as I described before. Max pain for CM.TO for April expiration is pegged at \$72. Not surprisingly, \$72 marks a long term support as shown in Figure 2 (blue line). A break below \$72 could summon \$65. The data also show that there is a large open interest for put options at the \$72 strike. Are they sold as covered puts or something else? That I cannot tell. However, \$72 will definitely be an important level for CM.TO in the near future. Nevertheless, as the options market is small in Canada, I wouldn't put much weight on options valuation for Canadian stocks. The value of open interest options on April CM.TO is merely about the size of a single day's of equity traded. P.S. March's max pain was \$68 one week prior to expiration. But CM.TO closed above \$75 on March expiration. That wasn't even close.

[caption id="" align="aligncenter" width="570" caption="CIBC (CM.TO) option valuation"][][][/caption]

[caption id="" align="aligncenter" width="570" caption="CIBC (CM.TO)"][]1[/caption]

[why the strength of our banks is an illusion created by our government]: http://baselinescenario.com/2010/03/25/the-canadian-banking-fallacy/