“That” being shorting Brigham Exploration Co. (Nasdaq: BEXP) at $13.11 on 1/28. As I mentioned at the time, shorting BEXP was sort of a pairs trade in that I was already long U.S. Energy Corp (Nasdaq: USEG), which is participating in a series of oil wells with BEXP in the Bakken formation. After the close the following Monday (on 2/1), BEXP announced positive drilling results in two Bakken wells that USEG is not participating in.
In an attempt to limit my risk, when I shorted BEXP I had set a stop limit buy order with the limit price a little less than 10% above the price where I shorted the stock. BEXP shot through my limit price in after hours trading that Monday and made a new intra-day 52-week high the next day, trading as high as $15.801. Looking back at the last time the company announced positive drilling results (on 1/5), I noticed that it had spiked up in price on the news, only to give back those gains a few days later. So I figured I’d let the stock settle down a bit before covering.
Later last week, I got a little greedy and canceled my stop limit order, thinking general market weakness might give me a second chance to make money on this short before the company announced additional positive drilling results. Last night, I thought better of that and entered a new limit order. I covered BEXP today at $14.35 for a 9.5% loss. USEG is up 7.9% since I shorted BEXP, so had this been an actual pairs trade (had I bought USEG at the same time2, and sold it today) it would have been for a 1.6% loss.
1This highlights a limitation (no pun intended) of limit orders: you have no assurance of getting them filled at your limit price or better; only options guarantee you the right to buy or sell a security at a specified price.
2I first bought USEG about a year and a half ago, at $2.85. I bought more later in the $2.70s, making my average cost about $2.80.
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