The M3 Options Trading System

[barn32]

I used to be like that...then I started trading options...I like it better this way...one trade a month (unless I have to "adjust").... Are you selling puts?
Actually, long put RUT butterflies (Russell 2000 index), hedged with IWM (Russell ETF) calls...

You can read/watch more about what I'm currently doing here:

http://www.smbtraining.com/overview/m3Well, I haven't quite watched all of the video, but so far I've only understood about 20% of it.

To fully get it I'm going to have to take a refresher course on the "greeks" and the butterfly spread.

But right off the top I have two questions:

1. In the video example trade he did an awful lot of adjusting, which generates a lot of commisions? No?

2. Is your loss on this trade capped out at 5K, or with all of the "adjusting" can you blow past that number if bad things happen?

[PaceAdvantage]

I understand it like this:

You should have $5000 for every "one" of these you want to trade. It generally costs me less than $2000 to get into the trade if you get in when he says to get in (about 50 days away from expiration). The closer you get to expiration, the more expensive these become.

The rest is in reserve in case you have to adjust.

No, one would never lose the entire $5000 (per butterfly), and I doubt very much if you'd even ever have $5,000 at risk (again, per butterfly...). Like I said, usually, I have less than $2,000 at risk at any time (per butterfly spread).

Plus, the rules state you are to look to exit the trade if you are down $500 or more, and you look to exit the trade if you are up $500 or more. You are also to exit the trade if there are only 20 days to expiration or less....if you were trading more than one butterfly spread (say you had $20,000 and you were trading 4 of these each time, then you would look to exit with either a $2,000 loss or $2,000 profit).

I have never had to make more than one adjustment thus far, and I've been trading these since around January....

This is a rather boring and slow way to trade...it's not something you have to monitor throughout the day...maybe take a look once at the start of the day and once at the end...they say you've made it as a trader once things get boring... :lol:

[PaceAdvantage]

And yes, if you don't know much about options, or if it's been a very long time, it's all going to sound quite foreign in that video...I haven't been trading options all that long (a couple of years), and even I was a little confused watching the video...

[badcompany]

And yes, if you don't know much about options, or if it's been a very long time, it's all going to sound quite foreign in that video...I haven't been trading options all that long (a couple of years), and even I was a little confused watching the video...

This is why I think much of option trading will be replaced by specialized ETF trading.

Options are too damn confusing.

[RaceBookJoe]

The guys @ SMB seem to know their stuff at least. Options can be very tricky with all of the things you can do with them.

[PaceAdvantage]

This is why I think much of option trading will be replaced by specialized ETF trading.

Options are too damn confusing.Options trading volume has been going nowhere but UP...

http://www.businessinsider.com/goldman-where-the-sp-500-trading-volume-went-2013-2

"Goldman Sachs options strategists Krag Gregory and Jose Gonzalo Rangel have the details:

The pace in 2013 has been even more remarkable for VIX options where the year-to-date average daily volume is running at a record high of 614,658 contracts – that is 1.4x the 2012 average and 22.4x the 2006 average.

VIX options had a record setting January: A breakdown of average daily volume by calendar month shows that VIX option average daily volume recorded an all-time high in January 2013 while S&P 500 options were in their 90th percentile relative to a 10-year history."

[badcompany]

From a volume standpoint, I can't argue.

Do you think a significant % is retail, or is it primarily the banks and funds hedging?

[PaceAdvantage]

I think retail investors have definitely become more comfortable with options in the last 5-10 years...the emergence of tastytrade and the acquisition of thinkorswim by TDAmeritrade hasn't hurt...that's how I become fully exposed initially, to the world of options...I've always been curious but was also always too intimidated to give it a go..

[Tape Reader]

From a volume standpoint, I can't argue.

Do you think a significant % is retail, or is it primarily the banks and funds hedging?

The SPY weekly options have drained most of the volume from the big S&P. The volume is enormous. The spread between bid and ask is pennies, and the premium is relatively small. Yes, the retail guy is in there trading.

Often you can get 10-1 on a Friday if you are correct.

IMO, no need to get into the sophisticated strategies. I just bet on the put or call.

[barn32]

A couple more questions:

1. It sounds like he's saying, "The T + zero line." Am I hearing him right. What is that.

2. What trading platform is he using to generate his charts. TradeStation? OptionVue?

3. Am I correct in assuming the trade starts out as a straightforward Put (or call) Butterfly spread? (He seemed to prefer doing these trades with puts for various reasons.) [Sell two at the money puts and buy two puts one in the money and one out of the money equal distances from the at the money strike.]

[barn32]

The SPY weekly options have drained most of the volume from the big S&P. The volume is enormous. The spread between bid and ask is pennies, and the premium is relatively small. Yes, the retail guy is in there trading.

Often you can get 10-1 on a Friday if you are correct.

10-1 on what? Volume? ??

[Tape Reader]

10-1 on what? Volume? ??

Let’s watch and see. On Friday, we will watch if the high and low on options expiring on that day have a high and low that is equivalent to 10-1.

Volume? One can easily buy hundreds of out of the money options, with hours/minutes to expiration. This is betting, not investing.

[barn32]

3. Am I correct in assuming the trade starts out as a straightforward Put (or call) Butterfly spread? (He seemed to prefer doing these trades with puts for various reasons.) [Sell two at the money puts and buy two puts one in the money and one out of the money equal distances from the at the money strike.]Well, I see now after further viewing he starts out with a bearishly positoned Iron Butterfly.

I googled Iron Butterfly and came up with

In-A-Gadda-Da-Vida (http://en.wikipedia.org/wiki/In-A-Gadda-Da-Vida)

:D:D:D

[PaceAdvantage]

1) I think you are hearing him right. I'm not sure what he means by that either...I thought T+ refers to settlement date of options. I thought he was just referring to the current P&L line which to me is the curved line in those graphs...I'm sure I'm interpreting this all wrong, but that line does represent the current P&L of the trade along various price points.

2) Not sure of the platform, but it's not tradestation. It might be OptionVue...it's one of the more expensive ones I believe

3) It's not a bearish trade. In fact, it starts out as a delta neutral trade, because after you purchase the put butterfly spread, you're supposed to purchase stock or calls to bring the delta to zero. Thus, you are protected a bit to the long side (due to the stock/calls purchased) in case of a big run up shortly after you put the trade on, plus you have a lot of downside to work with because the butterfly itself is a bearish-type trade...so even though the butterfly spread alone is a bearish trade, when combined with stock or calls, it brings it to a neutral trade in terms of delta.

Again, I'm sure I'm butchering the terminology here...I'm still no expert when it comes to trading options...I just know enough to do a little damage... :lol:

[barn32]

3) It's not a bearish trade. In fact, it starts out as a delta neutral trade, because after you purchase the put butterfly spread, you're supposed to purchase stock or calls to bring the delta to zero. Thus, you are protected a bit to the long side (due to the stock/calls purchased) in case of a big run up shortly after you put the trade on, plus you have a lot of downside to work with because the butterfly itself is a bearish-type trade...so even though the butterfly spread alone is a bearish trade, when combined with stock or calls, it brings it to a neutral trade in terms of delta.

OK, having been out of the game for a while, I'm having to go back to school. I wrote a simple spreadsheet to analyze the possible positions you might take according to his entry rules. With the RUT closing at 1120 today these are the numbers.

Strike Put/Call Lots Debit/Credit
1050 $14.70 1 -$1470
1100 $28.10 -1 $2810
1100 $41.70 -1 $4170
1150 $23.50 1 -$2350

Bottom line is that it generates a $3160 credit with a maximum loss of $1840.

1. Does the iron butterfly always generate a credit to begin with?
2. If I've done things right, the next step is to buy some IWM stock. What is IWM stock, is that a Russel Index fund? How much do you buy?
3. Then he says instead of using IWM stock he (buys?) deep in the money calls. Are these RUT calls? How deep in the money? How many?

I guess the numbers I'm showing are not delta neutral. You have to make that first hedge with the stock or the calls to get to that delta neutral point.

Am I on base with all of this?

[barn32]

...so even though the butterfly spread alone is a bearish trade, when combined with stock or calls, it brings it to a neutral trade in terms of delta.

I guess I should have read more closely what you said. Perhaps that's why you have to pay him the money...so you can see exactly how he hedges.

From the video it appears to be a combination of rolling up (or down) the butterfly, vertical spreads, or purchasing calls.

After playing around with it for a while, I can't figure out exactly how he's doing it.

[PaceAdvantage]

Like him, I buy calls (IWM calls, not RUT), not outright shares of the ETF (IWM is the ETF for the Russell). It achieves the same purpose of getting me to delta neutral and keeps everything in options. If you are trading multiple lots of these butterfly spreads, then you'd probably want to look at buying the RUT calls instead of the IWM calls....a RUT call would be too much though if you're only trading a "one lot" of these spreads...the IWM is smaller in size and works much better when you're only trading one or two lots of these things.

The long put butterfly is a net debit trade. You're buying the trade, not selling it (thus you don't get the credit deposited to your account when you open the trade like you do when you sell a credit spread). However, it is a theta positive trade (or at least your goal is to keep it a theta positive trade), so it acts much in the same way as if you were selling a credit spread. I don't know enough to explain why...I just know it is...

That spread you posted looks about right in terms of max profit/max loss. If your trading platform does not support you putting in butterfly orders (ie. you have to buy each individual leg of the spread and cobble it together yourself), then I would not be trading this system, or spreads in general. Find a broker/platform that lets you enter a single order for the entire spread at once, and executes the whole thing at once. I currently use thinkorswim...but I am still in the early stages of this. If I choose to get serious, I will find another broker with more favorable commissions.

With that said, the thinkorswim options platform at TDAmeritrade is an excellent piece of software for the options newbie...

I would also check out tastytrade.com. Their videos and streaming live shows can teach you a lot.

And again, I haven't paid Mr. Locke one cent...I got everything I basically needed off the video to get rolling with this...and I have rarely had to adjust...what he's doing in the video is NOT the original M3 trading plan. I am trying to duplicate the original M3 plan...I think he outlines the rules of the original M3 plan in the video early on (I believe there is a single slide in the presentation that has all of the rules...there aren't many rules), but what you see him trading through the rest of the video is NOT the original M3. He adjusts a LOT in the video...not sure if it's because of the trading environment he was in at the time (probably), or if his modifications over the years have led to more adjustments...but keep in mind what you see him doing in the video is NOT the original M3.

The original M3 is a simpler plan...and one that seems to agree with me thus far...

[barn32]

The long put butterfly is a net debit trade. You're buying the trade, not selling it (thus you don't get the credit deposited to your account when you open the trade like you do when you sell a credit spread). Thanks. This is what I originally thought. Early on in the video (at the 5:43 mark) there is a slide of his original 2007 M3 Trading Plan. Rule #5:

"Enter 1 put or Iron Butterfly 50 point wings 15-25 points below RUT price." That's where I got it.

The Iron Butterfly is a credit spread, and the long put butterfly is a net debit trade as you say.

I've looked at both. The Max profit/loss for the long put butterfly (entered 20 points below the close) at yesterday's closing prices is +$3960, -$1060.

Somehow, by adding stock, this brings the profit/loss to +$500, -$500.

[PaceAdvantage]

I don't know why he called it an Iron Butterfly...or maybe my interpretation of the M3 trade isn't exactly what he meant...lol...an Iron Butterfly doesn't use all puts...but I'm pretty sure his M3 uses all puts...and I'm pretty sure the M3 is a net debit trade.

As to your last line in your last reply...the only purpose of adding stock (or calls), is to bring the trade to delta neutral at the beginning. It does not bring the max/profit loss down to $500/-$500.

The $500/-$500 is your exit point in terms of profit/loss. You aren't going for max profit with this trade, and you're certainly not holding on until max loss. You're exiting the trade as soon as it hits either +500 or -500 or until you hit 20 days before expiration, whichever comes first. Of course, as you gain experience, you can bend the rules a bit. For instance, my September expiration trade, I hit the 20 days to expiration point, and I was at break even with the trade. I looked at the charts and thought there was little risk in holding on a bit longer, as I thought the market was probably going to head down some...I ended up exiting about 10 days later with about half my profit goal, which was better than just break even...

If you're trading multiple lots, then of course, the +500/-500 goal becomes +1000/-1000, +1500/-1500, +2000/-2000...etc...etc...

[barn32]

As to your last line in your last reply...the only purpose of adding stock (or calls), is to bring the trade to delta neutral at the beginning. It does not bring the max/profit loss down to $500/-$500.

OK, I think I've got it, just a couple of things. How much stock do you add, or how many calls do you buy and how deep in the money?

Also, is the Thinkorswim software telling you when your delta comes into line? Are you aiming for the +/- 50 for delta neutrality?

[I'm using IB, and I'm sure it has that capability, I just haven't figured out how to do it yet. IB is much, much more feature rich than when I was using it ten years ago.]

[PaceAdvantage]

You add as much as it takes to get the delta as close to 0 as you can, within reason (and this only occurs when you open the trade). Since I've only been trading this system since January, I'm still only trading one lot. So I've only ever had to add one IWM call. Of course, the deeper in-the-money the call is, this will also have an effect on how much it moves your delta towards 0. But of course, deeper in the money calls cost more. It's all a balancing act. I could buy more of a lesser in-the-money IWM call, which is cheaper in price, but then you're paying more in commission.

I would imagine, as you increase your lot size of these butterflies, you can switch to straight out RUT calls...

Just as a hypothetical example (I'm not sure if the ratio of number of calls to number of butterflies is accurate because I'm not in front of my trading platform now to verify), if you were trading 5 lot butterflies, instead of buying 5 IWM calls, you might only have to buy 1 RUT call, saving you on commissions. Or maybe you only have to buy 3 IWM calls if you buy deeper in-the-money calls. Like I said, it's a balancing act where you can go in a couple of different directions.

And if buying stock is cheaper, you could go that route too, and buy shares of IWM to get to delta neutral. I like to keep things simple, so I've only looked to trade all options when doing the M3.

[barn32]

John Locke Interview (http://www.moneyshow.com/articles.asp?aid=fxbiwkly08-28599&page=3)

[barn32]

If you don't mind just to clarify:

1. After establishing the initial butterfly spread, are you purchasing 1 IWM call (40,50,60) points out of the money or whatever as a proxy for the stock?

2. let's say the initial spread looks something like this:

1050 (buy 1)
1100 (sell 2)
1150 (buy 1)

And now the Russel takes a 30 (or 40, or 50) point drop to 1070~.

Do you wait until it drops below 1050 to roll down, or are you rolling down now because it dropped more than 20 points below your middle strike?

And, if and when you do roll down do you also purchase another IWM call at the same time? Roll down your first IWM call? Or let it stand?

Thanks

[PaceAdvantage]

If you don't mind just to clarify:

1. After establishing the initial butterfly spread, are you purchasing 1 IWM call (40,50,60) points out of the money or whatever as a proxy for the stock?

2. let's say the initial spread looks something like this:

1050 (buy 1)
1100 (sell 2)
1150 (buy 1)

And now the Russel takes a 30 (or 40, or 50) point drop to 1070~.

Do you wait until it drops below 1050 to roll down, or are you rolling down now because it dropped more than 20 points below your middle strike?

And, if and when you do roll down do you also purchase another IWM call at the same time? Roll down your first IWM call? Or let it stand?

ThanksI'm purchasing 1 IWM call that is DEEP in the money.

This is the most recent trade I made, which I closed out yesterday for full profit (a little over $500 including commissions).

Opening day = September 15, 2014 (I broke the M3 rule about buying around 50 days out...I believe there were about 30 days to expiration when I got into this trade, but that's because I held my September trade much longer than I should, and I didn't even think about opening the October trade, which I probably should have done...but I've gotten away with breaking this rule in the past...when you break this rule, you're basically giving up all chance to adjust if something goes very wrong to the downside especially).

Bought 1 RUT Oct 18 2014 1170.0 Put @ 37.63
Sold 2 RUT Oct 18 2014 1120.0 Put @ 15.99
Bought 1 RUT Oct 18 2014 1070.0 Put @ 6.35

Bought 1 IWM Oct 18 2014 107.0 Call @ 7.42

As you can see, the 1 IWM call I bought was well in-the-money, as it was trading around 114 on September 15, when I bought the 107 call.

I exited on September 26:

Sold 1 RUT Oct 18 2014 1170.0 Put @ 56.54
Bought 2 RUT Oct 18 2014 1120.0 Put @ 21.3
Sold 1 RUT Oct 18 2014 1070.0 Put @ 6.56

Sold 1 IWM Oct 18 2014 107.0 Call @ 4.58

Profit was about $518 including commissions (commissions were a little under $50 roundtrip...like I said, commissions aren't very good on TDAmeritrade...$9.99 per trade plus $.75 per option. So in the above trade, each side costs $23.73...$9.99+$3 for the butterfly, and $9.99+$.75 for the IWM call).

As for your downside adjustment example, I would wait until it gets to 1030 before I roll down 20 points...of course, if this happens late in the game, you're likely just going to exit the trade at a $500 loss instead of rolling down. That's the reason for getting in 50 days prior to expiration...you have time to adjust in case things go south early on...

As for what to do with the call when you roll down, it all depends on what the trade looks like after you roll down the butterfly...will the existing call be enough to have a comfortable delta with the new butterfly? Or will you need to add another call? Or will you sell the existing call and purchase a new one?

I've never had to do this yet to the downside...the last time I remember having to roll to the upside, I was able to keep the IWM call as is...despite rolling up 40 points instead of the recommended 20 points, and that's because I must have held on a bit longer than I should have...I use the rules as a general guideline, but I also pay attention to the overall market and the daily charts to determine how risky it might be to break certain rules...

[barn32]

I'm purchasing 1 IWM call that is DEEP in the money.I misspoke. Deep in the money is what I meant.

Profit was about $518 including commissions (commissions were a little under $50 roundtrip...like I said, commissions aren't very good on TDAmeritrade...$9.99 per trade plus $.75 per option. So in the above trade, each side costs $23.73...$9.99+$3 for the butterfly, and $9.99+$.75 for the IWM call).At IB (unless I'm reading things wrong) this trade would have cost around $7 to $10 round trip. But there is also this:

$10,000 minimum to open most accounts
$30 per month minimum commission requirement to avoid $10 monthly fee (rises to $20 monthly if account balance is less than $2,000)
$10 monthly for market data feed (waived if trade commissions are more than $30 per month)

If you only did the one trade per month, the total cost (including inactivity fees) would be around $30, which is still less than the $47 at Ameritrade.

However, something else to consider is that you have the Thinkorswim software, which I believe is free with TD Ameritrade. This might be worth quite a bit, seeing as how OptionVue in conjunction with IB (they are cross compatible) is $125 a month.

[PaceAdvantage]

Yes, commissions are a large chunk of profit when only trading 1 lot. Almost 10 percent...but once you move to a 2 lot, it becomes much less (5%)...and so on...

I've used IB in the past (not for a number of years), as well as TradeStation...probably time to take a look at their options platform and see if I can use it in place of Thinkorswim...I really like TOS for options though, which is why I haven't been motivated to look back to the other two brokers I've used in the past.

[barn32]

I've used IB in the past (not for a number of years), as well as TradeStation...probably time to take a look at their options platform and see if I can use it in place of Thinkorswim...I really like TOS for options though, which is why I haven't been motivated to look back to the other two brokers I've used in the past.I edited the end of my previous post to address this. I've looked around, but I couldn't find Thinkorswim as a stand alone product. Apparently it only comes with TDAmeritrade now.

[Tape Reader]

Let’s watch and see. On Friday, we will watch if the high and low on options expiring on that day have a high and low that is equivalent to 10-1.

Volume? One can easily buy hundreds of out of the money options, with hours/minutes to expiration. This is betting, not investing.

Friday call went from a low of 0.13 to a high of 1.39. Others had even bigger moves.

(If I knew how to post the chart I would.)

[badcompany]

Friday call went from a low of 0.13 to a high of 1.39. Others had even bigger moves.

(If I knew how to post the chart I would.)

This is the chart for SPY on Friday.

You had a 1% move during the middle of the day. What strike price are you talking about?

http://i95.photobucket.com/albums/l142/thinlizzy21/431CF3ED-E9DB-440F-9BF2-B15CCEC80787_zpss5j0ixo9.png (http://s95.photobucket.com/user/thinlizzy21/media/431CF3ED-E9DB-440F-9BF2-B15CCEC80787_zpss5j0ixo9.png.html)

[Tape Reader]

[QUOTE=badcompany]This is the chart for SPY on Friday.

You had a 1% move during the middle of the day. What strike price are you talking about?

It was the 197 call.

[badcompany]

It got up to about 198.40, thus, the 1.39.

Had you caught a nice chunk of the big up move, it was a good day. Of course, it's always easier after the race, as it assumes that you didn't bite on the two previous false breakouts earlier in the day, and that you didn't jump to the short side when the market started heading down.

[Tape Reader]

It got up to about 198.40, thus, the 1.39.

Had you caught a nice chunk of the big up move, it was a good day. Of course, it's always easier after the race, as it assumes that you didn't bite on the two previous false breakouts earlier in the day, and that you didn't jump to the short side when the market started heading down.

My post had nothing to do with any of your assumptions. It was merely to confirm that 10-1 is possible on the last day of expiration, as I stated in a post last week. It was about leverage and that was my only intent if you read my previous posts.

Sorry for the confusion. I didn’t have it.

[ReplayRandall]

It got up to about 198.40, thus, the 1.39.

Had you caught a nice chunk of the big up move, it was a good day. Of course, it's always easier after the race, as it assumes that you didn't bite on the two previous false breakouts earlier in the day, and that you didn't jump to the short side when the market started heading down.


Three tough decision hurdles to jump, and you have to be right on all 3 to get the biggest pay-off. I doubt that even the most seasoned of investors could do it. The temptation to take down the smaller sure-wins would be too great.......

[PaceAdvantage]

Just got into my October trade (Nov expiration):

Buy to Open 1 RUT NOV 22 2014 1140.0 Put Net Debit 49.34 -- -- 09:59:16 09/29/14

Sell to Open 2 RUT NOV 22 2014 1090.0 Put Net Debit 26.40 -- -- 09:59:16 09/29/14

Buy to Open 1 RUT NOV 22 2014 1040.0 Put Net Debit 13.36 -- -- 09:59:16 09/29/14

Buy to Open 1 IWM NOV 22 2014 108.0 Call Limit 4.73 -- -- 10:00:06 09/29/14

I'll update this thread with any adjustments and let everyone know how it goes...

[barn32]

Just got into my October trade (Nov expiration):

Buy to Open 1 IWM NOV 22 2014 108.0 Call Limit 4.73 -- -- 10:00:06 09/29/14

What would happen (other than having to outlay a lot more money) if you bought, say a 55 strike IWM call for around $55.55. The extrinsic value being only .55¢ vis-a-vis the over $2 premium with the 108s?

[PaceAdvantage]

What would happen (other than having to outlay a lot more money) if you bought, say a 55 strike IWM call for around $55.55. The extrinsic value being only .55¢ vis-a-vis the over $2 premium with the 108s?If something cataclysmic happened and the Russell opened up 200 points down one morning, I'd be out a helluva lot more money if I decided to bail. That's for starters...

What would be the benefit of spending so much more for essentially similar protection to the upside?

[barn32]

If something cataclysmic happened and the Russell opened up 200 points down one morning, I'd be out a helluva lot more money if I decided to bail. That's for starters...

What would be the benefit of spending so much more for essentially similar protection to the upside?Not sure really, but good point.

It was mentioned in this video, and that's where I got the idea.

http://optionstribe.com/2012/01/recording-butterfly-trading-with-deep-itm-calls-to-control-deltas-forrest-anderson/

[barn32]

But there is also this...

$30 per month minimum commission requirement to avoid $10 monthly fee (rises to $20 monthly if account balance is less than $2,000)
$10 monthly for market data feed (waived if trade commissions are more than $30 per month)

Inactivity fees are waived for the first three months.

[PaceAdvantage]

Snapshot of trade with vital statistics:

[PaceAdvantage]

Probably wondering how the position fared on such a dismal day:

[PaceAdvantage]

And don't ask me why the P/L since open adds up to ~$30 instead of ~$36, as you might think it should if you add today's P/L to yesterday's open P/L...daily P/L isn't 100% accurate for whatever reason it seems.

[PaceAdvantage]

Another update before the market opens today:

[barn32]

I made the same trade, however my entry point was a few days later and in the middle of that -250 point Dow drop.

Maybe I got bad fills or something, (the call fills should have been good) but I'm still underwater. But if you look at the T+23 line (23 days from now) the profits will start to come in if it stays under the tent and in a good range. (But it looks like my max profit at that point will be $446.)

These are my numbers:

1010 $11.09 1
1060 $21.99 (2)
1110 $42.16 1
107 $4.17 1

Divide those profit numbers (which are T+23) on OptionVue by 10, because in order to use OptionVue for analyzing the trade I had to do a ten lot so I could hedge with 1 Rut call.

http://i59.tinypic.com/6qxseq.jpg

[barn32]

And don't ask me why the P/L since open adds up to ~$30 instead of ~$36, as you might think it should if you add today's P/L to yesterday's open P/L...daily P/L isn't 100% accurate for whatever reason it seems.Not sure, but I think it has to do with the bid/ask spread during the trading session and the last price for the close.

The last price can be quite far away from where it's actually trading especially for the higher priced options well in the money.

The spread for my NOV 1110 put varies from $1 to $2. (As I write this the spread is $1.30--$41.80/$43.10

And on IB the running P and L uses the ask price, which you'll never get.

[PaceAdvantage]

Update after two straight days of MAJOR swings...this is what I love about trading this way...big swings up and down and my trade was never in danger of having to be adjusted...I was never in the red at any point...obviously, if we had gone down another 200+ points on the DOW today instead of up 200+ points, I would probably be looking at an immanent adjustment...but, that's not what happened:

[PaceAdvantage]

I made the same trade, however my entry point was a few days later and in the middle of that -250 point Dow drop.You made a similar trade, but not the same trade. And your max profit should be more than $446 at that point in time...it should probably be around $600 or more at 20 days from expiration...that's been my experience so far to date...

[PaceAdvantage]

My trade, while still in the black, is getting close to adjustment territory...Delta is climbing dangerously close to the 10.00 alarm, and price is heading down fast...

[barn32]

Yout T+0 line has a bad downward slope to it on the downside, and you are more than 30 points below your short strike. My interpretation is that you roll down when you go 20 points past your short strike, which in your case is 1090.

The short strike in my position is 1060, and I'll be looking to roll down if it hits 1045-1040.

Off course there is always the chance I am looking at things incorrectly.

[PaceAdvantage]

You have a point. I guess since I've never had to deal with price heading towards my lower strike since I started trading this around January/February, I was incorrectly interpreting the directions to mean adjust once price went 20 points below the lower strike.

But, he also seemed to be very flexible in that regard...and since my position is still profitable and my delta hasn't hit 10 yet, I wasn't in any rush to adjust. But thank you for pointing out an error in my interpretation.

If the RUT opens 30 points down on monday or more, I bet i wish I had rolled earlier...lol Because if that happens, the position will be down around $300. Still not down enough to be stopped out at my $500 stop loss price, but sucky nonetheless.

[barn32]

You have a point. I guess since I've never had to deal with price heading towards my lower strike since I started trading this around January/February, I was incorrectly interpreting the directions to mean adjust once price went 20 points below the lower strike.

But, he also seemed to be very flexible in that regard...and since my position is still profitable and my delta hasn't hit 10 yet, I wasn't in any rush to adjust. But thank you for pointing out an error in my interpretation.

If the RUT opens 30 points down on monday or more, I bet i wish I had rolled earlier...lol Because if that happens, the position will be down around $300. Still not down enough to be stopped out at my $500 stop loss price, but sucky nonetheless.If you look at your graph, your T+0 line is looks good to the upside. However, to protect against a move to the downside rolling down some time before that happens will have the effect of flattening out your T+0 line, and giving you more protection. Rolling, adding verticals, adding calls, selling puts etc. reduces profit, but that's why you allocate $5000 for the trade to begin with.

My trade has a maximum profit potential of about $3600 (at expiration) if it closes at my short strike (1060) and I don't do any hedging. But the fact that it probably won't close where you want it to, and you don't always wait until expiration to close, and that you might also do some hedging--reduces your profit.

And, what I'm beginning to realize, is that efficient (but very complicated) hedging will greatly improve your profits.

Delta is important but it's not the only consideration. Keeping your T+0 line flat is also important.

At this point in time that's my take on things anyway.

[PaceAdvantage]

Can't believe I made the mistake of misreading what he was doing to the downside...it's obvious looking at the graph, as you say, that the time to adjust is after it moves 20 points below short strike.

This might prove to be a costly lesson, but one I'm happy to learn...

[PaceAdvantage]

Well, I rolled down to a 1050 short strike. I sold my original position for about a $50 profit...so not feeling too bad about that...will put a chart up later.

[PaceAdvantage]

A snapshot of my new position at end of day after rolling down and taking small profit on initial position (my old positions still show at the bottom, albeit they are now all "zeroed" out in terms of quantity):

[PaceAdvantage]

Well well...if I hadn't seen barn's post correcting me of my misinterpretation, I would have been out long ago with my full profit on my November trade...but, I rolled down like I was supposed to, and I'm mired in the muck with this big move back up in the RUT...oh well...seriously though, I appreciate barn pointing out the error of my ways...it should serve me well in the long run....here's my graph...12 more days to go:

[barn32]

Bad fills, poor execution, rookie mistakes, and two major moves forced me to adjust first down and then up. (I made two more mistakes this morning and bought calls in stead of puts :bang:.)

I got much better fills this time (thanks Mike)

My new position:
Long 1 1040 RUT put
Short 2 1090 RUT puts
Long 1 1140 RUT put

Long 1 105 IWM call

Short 7 108 IWM calls
Long 7 107 IWM calls

These are my Greeks:
delta -5.91
gamma -1.32
theta 175
vega -496.7

This is the chart of my position after I rolled it up 50 points this morning and added a 7 lot IWM vertical call at 107/108. I left my 1 105 IWM call alone.

As you can see I am under water and will have to have some good luck and hold to very close to expiration to make a profit.

And by the way, do I have any idea what I'm doing? No. I'm flying by the seat of my pants.

(Right click on image/view image)

http://i58.tinypic.com/33u96x4_th.jpg

[barn32]

For the curious, this is appx. what my position looked like before I rolled it up this morning. (Appx., because the RUT is up 15 points today.)

One of the main problems was that my theta was around zero and my vega was positive.

http://i61.tinypic.com/4sci89_th.jpg

[PaceAdvantage]

Well, I'm violating the rules again...trade has moved more than 10 points past my upper strike, yet I did not adjust...and the "exit at 20 days to expiration" is this Friday. So, it seems I'm in this trade till I either hit my $500 stop loss, or it turns around on me...I'm not convinced this market is going to continue upwards...here's the not so pretty snapshot:

[barn32]

This is my trade for December that I put on last Friday with 56 days to expiration.

http://i62.tinypic.com/33uq52b_th.jpg

[barn32]

Rolled up 40 points yet again.

Old position, which was hopeless:

http://i58.tinypic.com/1z6scnc_th.jpg

New position, which has some promise:

http://i57.tinypic.com/1zz10uq_th.jpg

This could be foolish, but I'm walking a tightrope now. I'll have to hold on dangerously close to expiration, and perhaps do some fancy footwork along the way to extract any kind of profit. (If I can even make a profit.)

I'll just have to wait and see.

[PaceAdvantage]

I opened a December position yesterday, and am still holding November (which is getting turded...although I'm only down $200-$250 overall on that trade)...

I'll post up some graphs later

[barn32]

Not having traded in a long time I am really rusty. I've made so many "technical" errors it's comical. Made another beaut today.

Was going to roll up my December M3 and ended up closing out my November. :lol: Just as well I suppose, I was badly underwater on that one. I don't really know how much I lost. I'm still swimming around trying to figure out all the ins and outs of IB. The numbers are in there somewhere.

So after that debacle I ended up rolling my December M3 up 40 points and now it looks like this. (I actually made a small profit [I think:lol:] closing that out.

New position:

http://i59.tinypic.com/1rw0ee_th.jpg

[PaceAdvantage]

I should probably roll up my Dec...1150 is the point where I should roll...but...the market came back a little bit at the close...sitting at 1155 with a minute to go...I'm going to hold off until tomorrow on that one...

As for November, there is no point in getting rid of it at this point...will just keep my hard stop loss in mind, and if it doesn't hit that, then I will let it roll around a bit...still owe this thread some screenshots...November is probably off the screen by now... :lol: :lol: :lol:

[PaceAdvantage]

And by the way, I got into my December trade as easy as I have ever gotten into a trade like this. I must have messed something up...when I was about to enter the trade, the midpoint was (I swear) around 9.60-9.70...I put my order in for 9.65 and was almost immediately filled at 9.29...it was very weird.

And it wasn't like I had to have screwed up, because if that were the case, I would have immediately been down on the trade, but I wasn't...

What I think must have happened, was that I wasn't paying as much attention as I should, and while the 9.60-9.70 was what I saw on my screen, it was probably one of those "fakey" type midpoints...these things have a tendency to jump every so often to prices that you KNOW aren't all that valid...that must have been what I saw, what I entered, and was so far beyond the norm, I got filled immediately at the true midpoint...

Entering and exiting these trades can be a bitch, as you well know...

[barn32]

And by the way, I got into my December trade as easy as I have ever gotten into a trade like this. I must have messed something up...when I was about to enter the trade, the midpoint was (I swear) around 9.60-9.70...I put my order in for 9.65 and was almost immediately filled at 9.29...it was very weird.

And it wasn't like I had to have screwed up, because if that were the case, I would have immediately been down on the trade, but I wasn't...

What I think must have happened, was that I wasn't paying as much attention as I should, and while the 9.60-9.70 was what I saw on my screen, it was probably one of those "fakey" type midpoints...these things have a tendency to jump every so often to prices that you KNOW aren't all that valid...that must have been what I saw, what I entered, and was so far beyond the norm, I got filled immediately at the true midpoint...

Entering and exiting these trades can be a bitch, as you well know...Actually, I exited and entered my trades today above the midpoint. In other words, I got a better than average fill. Instead of starting out at the midpoint I started well above and worked my way toward the center. I was kind of surprised. Maybe it was because of the volatility, I don't know.

But what I do know, on IB anyway, is that there were some freeze ups on certain contracts and prices that weren't moving with the market. I don't think that was the case with my trades that got filled, but it was the case with a different trade I was trying to make earlier on. The price was frozen on the option even though the stock was moving.

[PaceAdvantage]

I got out of my December trade with a $54 loss total, including commissions...I will open another December trade later today...

As for the November trade, which I told you I'm holding on to come hell or high water, for no other reason than I'm stubborn, here is the ridiculous screenshot...I'm actually losing less money on the trade now, because it's blown up so much to the upside... :lol:

[barn32]

December M3. Lookin good in the neighborhood.

http://i57.tinypic.com/6jdc35_th.jpg

Had I kept my Nov position this is what it would look like now. :ThmbDown:

http://i61.tinypic.com/ej63hd_th.jpg

[When you hover over an image and right click/view image it takes you to a very tiny image instead of the tinypic webpage where you can see the image clearly. I have no idea what I'm doing wrong.

The other alternative is to copy/paste the image or use your interface, but that makes the image so large that you have to scroll clear to Kansas to see it all.]

[barn32]

Entered 2nd M3 for Dec today with 38 days to expiration. (Finally figured out how to size images properly.)

http://i62.tinypic.com/292vixc.jpg

[barn32]

Here are the Greeks.

http://i62.tinypic.com/2qw3c7b.jpg

[PaceAdvantage]

Update:

I sold my November IWM call because I thought the market looked toppy on Friday...the RUT butterfly that went along with it, at that point in time, was worth about a nickel, so it wasn't worth it to try and get rid of it...lol...so I am still hanging onto that in case the market crashes this week (Friday is expiration). But, barring a complete market meltdown, my loss in the November trade will be a little less than $400. If the market crashes, that loss might decrease...

My December trade is doing well, currently +$200 or so (I'm including the earlier $54 loss in that figure when I rolled up), so 40% of my profit goal with 12 days to go until I'm supposed to get out no matter what...

[barn32]

It's really said I made so many mistakes with this trade the least of which was exiting by mistake. I ended up losing about $400.

Had I stayed in, (and yes, it's just a few days from expiration), and even with all of the adjustments, it's showing a $1200 profit as of close today.

http://oi57.tinypic.com/34fzp0x.jpg

[barn32]

In the interest of full disclosure here are my positions as of 11/25/14:

I rolled my first December M3 back 30 points today. I lost about $200 on the spread roll, but I'm up around $600 on the hedges, so that makes me up around $400 as of today. The position looks like this:


http://oi60.tinypic.com/21azv9i.jpg

My second M3 is right around even and I haven't made any adjustments. I'm outside of the tent, but the Delta is fine so no worries.

http://oi62.tinypic.com/294ni9e.jpg


And today with 52 days until expiration I started a January M3, but this time I'm doing two lots.

http://oi60.tinypic.com/2n0odqq.jpg

[barn32]

My second M3 is right around even and I haven't made any adjustments. I'm outside of the tent, but the Delta is fine so no worries.

http://oi62.tinypic.com/294ni9e.jpg


Actually, I did make an adjustment here. I was slightly out of the box and my delta was getting too high so I added in an IWM five lot 1200-1220 vertical call spread.

http://i60.tinypic.com/29gfqea_th.jpg

http://oi62.tinypic.com/35b724g.jpg

Which made the Greeks look something like this:

http://i60.tinypic.com/ibc45s_th.jpg

[PaceAdvantage]

The rules state I am to get out of my December trade on Friday, which I will do, before 1pm (early close day). As of today, I am at about break even on the trade if you include the earlier ~$50 loss and commissions....my delta started inching over 10 earlier this week, but with such little time left in the trade (if I am to honor the "exit at 20 days until expiration" rule), it wasn't worth it for me to try and adjust...

[PaceAdvantage]

OK, redboard here...when I checked the markets at about 12:15-12:30pm on Friday, the market was down a bit and my position had increased modestly...I decided to hold over the weekend and see what happened today...

Well, today was pretty nice...very nice in fact. I was able to get out with a $473 total profit for the December expiration (including commissions and the ~$50 loss on the earlier December attempt that failed and had to be rolled up).

I also got into my January 2015 spread today and will try and post a graph of that later...

[badcompany]

OK, redboard here...when I checked the markets at about 12:15-12:30pm on Friday, the market was down a bit and my position had increased modestly...I decided to hold over the weekend and see what happened today...

Well, today was pretty nice...very nice in fact. I was able to get out with a $473 total profit for the December expiration (including commissions and the ~$50 loss on the earlier December attempt that failed and had to be rolled up).

I also got into my January 2015 spread today and will try and post a graph of that later...

How much did you risk? In other words, what were the odds?

Btw, here's a way to red board without red boarding.

http://i95.photobucket.com/albums/l142/thinlizzy21/97f1e17c4fb12ab4bc117d7faae1451d_zps02ae03c7.jpg

[PaceAdvantage]

My profit target is $500 and my stop loss is -$500 per lot.

[PaceAdvantage]

Finally posting a screenshot of the current January expiration trade...came very close to having to roll it up recently as the Russell flirted with 1190, but recent pullbacks have given me some room as of late...

[barn32]

I closed out the last of my two December M3 trades yesterday. I was short 5 puts as part of a vertical spread hedge and I was just waiting for them to expire. Profit wise, my P&L says I made $1400, but after subtracting for some adjustments I think I only made about $800 on the two spreads combined?

Why don't I know exactly? Good question. I spent an entire morning trying to piece together my trades and aligning them with OptionVue, but something was askew. So I think my estimate will have to make do.

(One problem is that when you are hedging with IWM you aren't able to make that distinction using OptionVue. You can't mix and match different contract types. So to adjust for that you multiply your RUT contracts by 10 (if you're doing a 1 lot) and just use one RUT call for your hedge. The numbers don't work out exactly the same (but it's close) and it's easy to mess up your Trading Log. I'm hoping ThinkorSwim doesn't have that limitation.)

I'm still not 100% up to speed with IB. OptionVue is raising their prices in January to $100 a month for IB customers (from $85). I opened a TD Ameritrade account so I could play around with ThinkorSwim to see if that could be a viable replacement for OptionVue, but I still haven't got around to figuring out how to use ThinkorSwim yet. (Yet another learning curve.)

My January M3 trade looked like this a couple of days ago before the run up and this was after a 30 point adjustment (which somehow gave me a $460 profit) while the market was tanking. A good looking M3. (One problem is that I mistakenly did a January 16 expiration instead of Jan 22, so I hope that doesn't come back to bite me later on. (Lesson? Be very careful that you are trading the right contracts! It's so easy to click the wrong buttons.)

http://oi58.tinypic.com/2hplmk3.jpg

This is what it looks like today. What a difference two days can make.

http://oi61.tinypic.com/4ptxt2.jpg

As you can see I'm well outside the tent in roll up territory. If I roll it up 40 points it will look like this:

http://oi59.tinypic.com/op67g5.jpg

There is no real hurry to roll. I can watch the market today and if it pulls back I can wait, but if it keeps rallying I'll just probably roll it up 40 points and be done with it. I'll probably have to do a delta hedge sooner or later as well and that can most likely be done with something like a 5 lot (IWM) 1140/1160 vertical spread. The delta hedge will also help to flatten out the T+0 line on the upside, because as you can see it is starting to take a bit of a dip. Any continued upward movement and I'll want to be prepared for that.

I just have to keep my eye on it and experiment around with some different numbers until I can get the greeks close to where I want them.

[PaceAdvantage]

I am sitting on the roll up point right now (1190)...my position is in the red by about $115 (not including commissions)...I will have to decide near the end of the day what I want to do...even if I do roll up, I have a feeling I'm going to be taken out again, and there isn't much time left in this trade (supposed to be out by next Friday at the latest, if I follow the rules).

[barn32]

I am sitting on the roll up point right now (1190)...my position is in the red by about $115 (not including commissions)...I will have to decide near the end of the day what I want to do...even if I do roll up, I have a feeling I'm going to be taken out again, and there isn't much time left in this trade (supposed to be out by next Friday at the latest, if I follow the rules).If you roll, you'll still be down $115, but you will be in a much better position going forward.

The roll gives you 30-40 points of movement before you have to do something again, and with the choppy nature of the RUT it will probably go back and forth for a while rather than just straight up (or straight down), but that's just an opinion. One of the good things about this trade is that it is so forgiving. It takes some big moves to make you have to adjust.

Also, you can hold the trade closer to expiration. There is no reason you can't. You just might have to watch it a little more closely. I held my December trades into the last week. I should have got out the week before, but I got greedy, the market spiked down, and it cost me some profit.

So, if it were me, and I didn't plan on rolling, rather than gamble I might just exit right here and take the $115 loss. Rolling does give you the best opportunity to take some profit out of the trade, but you'll have to hold it for a while to make that happen...and as you pointed out a large spike upward (30-40 points?) will put you at yet another decision point.

Your choice.

[PaceAdvantage]

Actually, if I follow the rules...the rules state to roll up 20 points, yes?

Which means my upper long strike would become 1200 after the roll. And my new "roll up point" becomes 1210, which is only 20 points higher than the market right now...

With all that said, I agree with you...if the market is above my roll point by 3:30 today, I will look to roll up.

[barn32]

For the three people still following this thread, I rolled up my butterfly 50 points and added in a 6lot 119/121 vertical put bull spread and my position now looks like this: (My delta was still way too high so I bought one more 107 call)

http://oi59.tinypic.com/2v0y4hv.jpg


This is what the position will look like in 7, 14, 21 and 28 days respectively if I can maintain the position between the two vertical dashed lines:

http://oi62.tinypic.com/20r0nz5.jpg

[barn32]

Actually, if I follow the rules...the rules state to roll up 20 points, yes?

True, but the "rules" are flexible. John Locke does all kinds of things that go against the "rules." Those original rules were designed for traders new to the concept and to make it as simple as possible.

But you have to do what you think is necessary to make the position look attractive while keeping your greeks in line.

I just rolled 50 points. (I don't like to take a position [long or short] with this type of trade, but I just can't help being somewhat bullish going forward.

Now am I doing the right thing? Do I know what I'm doing? Hell no. It's a giant guessing game in a sense. Lots of trial and error. Lots of mistakes.

But it is a great way to learn some things.

[barn32]

After adding in the extra 107 call the position now looks like this. I'm comfortable with this going into the weekend. My T+0 line is relatively flat and my delta is under 10.

So, we'll just have to wait and see what happens next.

http://oi62.tinypic.com/11bkuo3.jpg

[barn32]

I rolled up my butterfly 50 points and added in a 6lot 119/121 vertical put bull spread...After adding in the extra 107 call the position now looks like this. Actually, the position looks like this:

http://oi60.tinypic.com/2mr5g2b.jpg

It just didn't make sense to me at the time that I had to add in those hedges, so I went through IB and OV and went over every trade and reconstructed things from the beginning.

Due to the fact that I bought some wrong contract months, (which I later corrected) and also because of a lagging issue with OptionVue, I mistakenly believed I had to hedge my delta with vertical calls and a 107 call to get things back in line.

It turns out of course that I didn't need those hedges.

So, as you can see, in actuality I am heavily tilted to the upside. Hopefully the markets open up on Monday morning so I can exit those hedges with a profit. Either way, if I simply get rid of them my position (after the 50 point roll) will then look like this, which makes a lot more sense.

http://oi58.tinypic.com/11lsetk.jpg

[barn32]

My current position looked like this. My delta was -120, and the T+0 line was trending down.

http://oi57.tinypic.com/fw7evp.jpg

To correct that I bought eight 122/120 IWM vertical put spreads. This lowered my delta to -14, and the position now looks like this. I'm currently +$77 in the trade.


http://oi61.tinypic.com/so6zbd.jpg

[PaceAdvantage]

I rolled up like I said I would...but had to buy two IWM calls to get a decent graph and a decent delta....

Now of course, since I rolled up, the market continued to creep up, and I'm within 10-12 points of having to roll up again, which won't happen since we're almost at the 20 days till expiration point...this month might be the rare bust...we shall see...

I'm sure an "end of year rally" is certain to follow this "Santa Claus rally"... :lol: :bang:

[PaceAdvantage]

I'm still in my January trade, believe it or not...and I'm only $200 away from getting out at full profit (including the earlier roll-up loss + commissions). Fingers crossed...running out of time...but the graph sure is pretty today.

I'm also in the February trade, and as this is my first official opening position of 2015, I've increased my size to three lots....will be going for $1,500 profit per trade this year, up from $500 in 2014. Jan graph below...Feb graph in next post

[PaceAdvantage]

Feb graph

[barn32]

My earlier 50 point roll was a mistake, and I'm paying for it now. I just rolled up another 40 points, and I'm currently -$411 going into the last two weeks. (2 lots)

This is my third roll of the trade. Down, up down. Not a good scenario for this kind of position.


http://oi62.tinypic.com/2r7m1r7.jpg

[barn32]

This is what my position looked like when I rolled up 40 points an hour from the closing bell.

I was actually showing a profit this morning 30 minutes from the opening.
http://oi59.tinypic.com/2iozdi.jpg

[da_ksk]

Hi everybody!


Which are the poinst of adjust that you usually use?
And de DTE?

The last question: do you know where I can find more free information about this strategy?

Thanks

[PaceAdvantage]

I closed out my January trade today (+$311.93 when all was said and done). I was still about $200 away from my profit goal for the month for this trade, but the delta was a tad over 10 with about 15 minutes to go in today's trading session, and I didn't want to press my luck...here is the breakdown of the January trade:

Date Time Description Fees Comm Amount
12/1/14 15:52:14 BOT +1 BUTTERFLY RUT 100 JAN 15 1180/1130/1080 PUT @10.51 CBOE -0.11 -12.99 -1,051.00
15:52:25 BOT +1 IWM 100 JAN 15 111 CALL @5.47 CBOE -0.03 -10.74 -547.00

12/19/1415:05:48 SOLD -1 BUTTERFLY RUT 100 JAN 15 1180/1130/1080 PUT @6.00 CBOE -0.11 -12.99 600.00
15:06:23 SOLD -1 IWM 100 JAN 15 111 CALL @8.30 -0.05 -10.74 830.00
15:18:57 BOT +1 BUTTERFLY RUT 100 JAN 15 1210/1160/1110 PUT @10.31 CBOE -0.11 -12.99 -1,031.00
15:20:16 BOT +2 IWM 100 JAN 15 116 CALL @4.11 -0.05 -11.49 -822.00

1/7/15 15:52:40 SOLD -1 BUTTERFLY RUT 100 JAN 15 1210/1160/1110 PUT @20.72 CBOE -0.11 -12.99 2,072.00
15:53:00 SOLD -1 IWM 100 JAN 15 116 CALL @1.79 BOX -0.04 -10.74 179.00
15:53:00 SOLD -1 IWM 100 JAN 15 116 CALL @1.79 BOX -0.04 -0.75 179.00
-----------
+311.93 (incl comm)

[PaceAdvantage]

And here is the opening of the February trade...I am going to keep track of my performance in this thread for 2015...at least until I start losing my shirt... :lol: :lol:

Date Time Description Fees Comm Amount
1/2/15 14:30:20 BOT +3 BUTTERFLY RUT 100 FEB 15 1220/1170/1120 PUT @9.25 CBOE -0.31 -18.99 -2,775.00
14:30:31 BOT +3 IWM 100 FEB 15 116 CALL @5.10 BATS -0.08 -12.24 -1,530.00

PaceAdvantage M3 Trading Tour 2015
------------------------------------
January +311.93

[barn32]

Date Time Description Fees Comm Amount
1/2/15 14:30:20 BOT +3 BUTTERFLY RUT 100 FEB 15 1220/1170/1120 PUT @9.25 CBOE -0.31 -18.99 -2,775.00
14:30:31 BOT +3 IWM 100 FEB 15 116 CALL @5.10 BATS -0.08 -12.24 -1,530.00

Your short strike is only five points below the market?

[PaceAdvantage]

Not anymore... ;)

Right now, it's almost 20 points below...

When I opened the position, it was 25 below...so all is well...

[barn32]

The Rut moved up 40 points in two days (down 10.5 toay) so I had to do some fancy footwork. Either that or just sell out and take the loss. I decided to stick it out.

http://oi59.tinypic.com/zvaohv.jpg

My new position:

http://oi61.tinypic.com/14xcuwm.jpg

[barn32]

This is an uncluttered view of my current position.

http://oi60.tinypic.com/4tnf5y.jpg

[PaceAdvantage]

No offense, but you seem to be getting into more pickles than I have while trading this system. Your graphs don't look very healthy either.

For instance, your max loss on the short side increases as price goes down...it shouldn't be like that...it should be a flat, horizontal line, and you should be losing the same max amount whether the RUT ends up five points past your lower long strike, or goes to zero...shouldn't matter...you'll lose the same exact amount.

[barn32]

No offense, but you seem to be getting into more pickles than I have while trading this system. Your graphs don't look very healthy either.

For instance, your max loss on the short side increases as price goes down...it shouldn't be like that...it should be a flat, horizontal line, and you should be losing the same max amount whether the RUT ends up five points past your lower long strike, or goes to zero...shouldn't matter...you'll lose the same exact amount. Here is a screenshot from the John Locke video. When you add in verticals to hedge you get a graph that looks like mine.

[IMG]http://oi60.tinypic.com/2z6w901.jpg[img]Can't seem to post an image from my phone.

[barn32]

No offense, but you seem to be getting into more pickles than I have while trading this system. Your graphs don't look very healthy either.No problem. This is a giant learning curve for me. However, I have to disagree about my graphs. I'll explain later.

For instance, your max loss on the short side increases as price goes down...it shouldn't be like that...it should be a flat, horizontal line, and you should be losing the same max amount whether the RUT ends up five points past your lower long strike, or goes to zero...shouldn't matter...you'll lose the same exact amount.I don't know where you're getting this, because to my way of thinking the opposite is true.

I'm posting two screenshots straight from the video. The first one is an entry position with no adjustments. The second is after adding some verticals. You can see that the left side of the graph is clearly well below the right side. {But I could be misunderstanding your point or misinterpreting the graphs.}

Also, a lot depends on when you enter the trade and for what strikes. On my January trade I entered at 56 days out and the market immediately took a hit to the downside. So I rolled. It stayed even for a while and then took a hit to the up side. So I rolled. Then at the end of December beginning of January it took another big hit to the downside, so I rolled again, and then finally it took another hit to the upside, and I rolled for the fourth time. Even with all of that adjusting, I can still show a profit.

I take a completely market neutral position on this trade. I have no opinion of what the market might do when I enter or adjust. I might be bullish or bearish on the market in general, but as far as this trade is concerned I just adapt to what the market has done. I don't let my thoughts on things influence this trade. I simply adjust when it is necessary, and I hope I'm not making any major errors. If I am, please feel free to point them out.

I'm not going to tell you about some of the really embarrassing mistakes that I've made.


ENTRY POSITION

http://oi59.tinypic.com/s2qp05.jpg

POSITION AFTER ADJUSTING WITH VERTICALS

http://oi58.tinypic.com/mv2snr.jpg

[barn32]

No offense, but you seem to be getting into more pickles than I have while trading this system.I have to admit this part is correct.

I back traded my M3 trying to eliminate some errors which were:

1. Adjusting too much
2. Over adjusting
3. Not being patient
4. Over trading
5. Misc other errors

It turns out I made some pretty bad mistakes.

Had I eliminated just some of those errors, my graph would look like this...up $1488

[And the way things look now, I'll have to get damn lucky not to take a pretty big loss.]

http://oi57.tinypic.com/2vt9zpy.jpg

[PaceAdvantage]

I intend to respond...not ignoring you...just don't have the time right now... :ThmbUp:

[barn32]

I've written my January M3 trade off as a total loser, although there is still a small glimmer of hope. That doesn't mean there isn't a lot to be learned from the trade and a little analysis is in order.

First of all, in order for this trade to end up profitable, the RUT would have to stay right about where it's at or a little bit higher (or lower). I'm short four of the 1170 puts for a price of $9.41. With the Rut at 1172 they are currently at $16.45. (While I was writing this they decayed to $15.65. With the Theta over 1 and growing time decay will start to move rapidly.) That's almost $14.00 of time value with nine days to go. If the rut were to end at say, 1168 at expiration these would fall to $2 and I would profit around $2800. (Subtract the $900 I'm currently losing and that's $1700 to the good.

The problem of course is getting it to stay there without too much further adjusting.

The dashed line in the chart represents the theoretical position seven days from now. If it were to end there I would profit around $600.

I have a little bit of room, but of course if the RUT takes off big one way or the other I'm in trouble.

I'm going to hold onto this trade as long as I have the stomach and just let things fall where they may.

On an unrelated note, I don't like the way the market is acting. Up 200 points one day and flat or minus by the close. That represents inherent weakness to me, and although this could be a good buying opportunity I just went flat the last of all my long positions while awaiting further developments.

Other than my spreads, I am currently just in and out of some day trades.

http://oi59.tinypic.com/2j3k581.jpg

[barn32]

.
http://oi57.tinypic.com/1zyjuo3.jpg

[PaceAdvantage]

The point I was trying to make is that my "left wing" never has a slope to it as it extends out towards 0. It is always a flat line. Looking at your most recent graph, your left wing is sloping sharply upward as it heads towards the RUT price of 0. Why is this?

Here is my current graph of the February trade...I have made zero adjustments since taking on the trade, and I have thus far NOT violated any of the M3 basic rules...I am currently in the black by almost $500...

[barn32]

Looking at your most recent graph, your left wing is sloping sharply upward as it heads towards the RUT price of 0. Why is this?
I'm not sure, let me think about it.

On what date did you enter your February trade?

[PaceAdvantage]

Check out reply #94 for details....January 2

[barn32]

Looking at your most recent graph, your left wing is sloping sharply upward as it heads towards the RUT price of 0. Why is this?
With OptionVue you have the ability to back test and/or look at multiple strategies to get an idea of what your analyze graph will look like if you make those changes. What you are seeing is an adjustment that I didn't make. It occurred because I tested buying 5 or 6 of my upper strike puts...as a kind of hedge. I was just experimenting around and took a screenshot of that adjustment instead of the actual position. However, the line on my tails is still not perfectly flat. On the left they slope slightly down, and on the right slightly up. I'm not positive, but I think that's due to some vertical hedges I made along the way.

As far as the February trade is concerned I entered on Dec 26 with a middle strike of 1180 and the RUT around ~1215. On Jan 6th the RUT reached an intraday low of 1151--30 points below my short strike and around 60 points below my 1215 entry point. Combing that with a Delta of around +140 I went ahead and rolled up 40 points.

Since you entered with a middle strike of 1170 you were probably never really more than 20 points below your short strike and didn't make an adjustment.

Again, sometimes it all depends on when you enter the trade and for what strikes.

I'm currently showing a small profit on my February trade.

Here is the same Jan 14th graph in question, and what it actually should look like.

http://oi57.tinypic.com/15pn88w.jpg

This is a graph of my February trade. I rolled once and made no vertical hedges yet the tail on the left is flat and the one on the right slopes upward. I'm not sure why.

http://oi60.tinypic.com/2mn5550.jpg

[barn32]

My January trade has made a comeback. Currently up ~$600. Watching it closely. Theta is 680.

http://oi62.tinypic.com/xemn0n.jpg

[barn32]

When the DOW started turning south, rather than hedge, I began closing out my Jan M3. I started buy selling all of my long calls and then buying back my short puts.

I kept my shorts on and let them run until the RUT was about -9 or -10 and then closed down the entire trade. (Too bad I didn't hold on until the RUT was down almost 14. I would have made another $3200.)

OptionVue and IB says I made $1300. That didn't seem right, so I redid the entire trade in OV and IB to make sure. I found some errors, but it wasn't too far off. I netted $1178.

Things ended up well considering last week I was down $1050 at one point.

[Closing Position]

http://oi57.tinypic.com/juxv6o.jpg

[My February trade is currently +$161]

http://oi60.tinypic.com/jjpe0y.jpg

[PaceAdvantage]

I'm currently showing a small profit on my February trade.

Here is the same Jan 14th graph in question, and what it actually should look like.

http://oi57.tinypic.com/15pn88w.jpg

This is a graph of my February trade. I rolled once and made no vertical hedges yet the tail on the left is flat and the one on the right slopes upward. I'm not sure why.

http://oi60.tinypic.com/2mn5550.jpgThe left tail should always be flat, or so I thought...that's what I am trying to say. The right tail is always supposed to slope upward, as your protective call helps hedge you to the upside.

[PaceAdvantage]

Here is my February trade as it stood at close of day on Friday. I haven't made a single adjustment to this trade. With that said, the past two days have been dicey, in that my Delta was way under -10 during the trading day (it got as low as -20 at some points...rules state you need to start thinking about doing something when Delta gets past +10 or -10)...yet, with a relatively healthy profit going (over $900 thus far), and given my interpretation of the daily chart (don't think market is going much higher anytime soon), I thought it was best to leave it alone and keep a very close eye on it. I could have rolled up the butterfly (and left the IWM calls intact...speaking of IWM, I have to look into buying a single RUT call next trade instead of 3 IWMs...save $1.50 on commissions...LMAO), which would have brought my delta back to very close to 0. But for some reason, I chose not to...apparently, the elections in Greece on Sunday are supposed to have some sort of impact on the markets...I'm thinking the only major impact they might have is to the downside...but I'm thinking they'll have zero impact...

Given I'm well in the black, and that leaving my trade intact keeps me with plenty of downside room (I am biased to the downside if anything), I didn't pull the trigger and roll up...

The rules say I should get out of the trade by end of day this coming Friday...I regularly break that rule...we shall see....graph below:

[PaceAdvantage]

I also need to start learning to keep my opinion out of this trade. This is supposed to be a purely mechanical trade based on nothing but the Greeks and price movement. But here I am, not rolling up my butterfly when my Delta starts to drop like a rock...

These are very simple rules to follow, and they have worked well for me since I started with this trade a little over a year ago...but I can't help myself and end up having to put my little spin on things....

[barn32]

I also need to start learning to keep my opinion out of this trade. This is supposed to be a purely mechanical trade based on nothing but the Greeks and price movement. But here I am, not rolling up my butterfly when my Delta starts to drop like a rock...

These are very simple rules to follow, and they have worked well for me since I started with this trade a little over a year ago...but I can't help myself and end up having to put my little spin on things....You must be doing something right, because I have yet to get out of this trade until the last week to expiration.

My Feburary trade is still about $100 under water.

Re your trade. No need to roll as you're still ten points below your long strike. All you need to do is add in some IWM verticals, and you can base them off of your short strike of 1170.

You need to experiment around with the size, to get to the right Delta number, but what you could do is add in, say, a -5 (or 3, or 2, or 6 or whatever) 1170, +5 1190 vertical.

What that will do is straighten out your T+0 line on the right side of your graph, and it should bring your Delta right back in line.

Those verticals, when based off of your short strike will also have a tendency to flatten out the top of your tent.

[If I have time, I'll put your trade into OptionVue and see what it comes up with.]

[barn32]

Just out of curiosity I back tested my February trade without making the roll and I would be up $600. Curiously enough that roll profited me $600. I must have got bad fills on my subsequent trade because it's $700 under water. I can't figure it out.

I put your February trade into option vue and it looks good. It's actually 30 points below the long strike right in the center of the tent. The Delta is around minus 100, but that can be fixed (if you're so inclined) by adding 8 IWM 1170-1190 verticals. That brings your Delta down to minus 1 and straightens out your T + 0 line.

Of course you could also do nothing and see what happens. The adjustment would protect your profits if there was a 20 to 30 point up move in the RUT.

I'll put up some graphs later tonight.

[PaceAdvantage]

Just goes to show you how little I've had to make adjustments in the last year...I completely forgot I could adjust my delta through adding calls and verticals...lol

I'm still a noob at this I guess...dangerous...but I'm thankful for the back and forth we're doing here...it helps

[barn32]

I'm still a noob at this I guess...dangerous...but I'm thankful for the back and forth we're doing here...it helpsMe too.

Don't forget, that I learned about about this idea from you. When I first got into this I had never traded a spread let alone a butterfly. I didn't know what the RUT or IWM even was. The Greeks were just that--Greek.

[Now I have a pretty good handle on Delta and Theta. I'm working on Vega, but Gamma still eludes me.]

John Locke seemed sincere, and I just got the sense that his ideas were valid. But after my first viewing of the video I only understood about 20% of what he was talking about.

Through tons of trial and error, lots of missteps and, and repeated viewings of many different videos I finally started to piece some things together.

One thing is for sure: you have done a lot better than me by just being patient and leaving things alone, while I have spent too much time trying to get fancy. Some adjustments are fine and necessary, but too much adjusting too often isn't the right approach.

As far as your Feb M3 is concerned, since I don't know the exact prices you paid for your RUT contracts I had to approximate the prices as close as I could. OptionVue has you up ~$891, and you are actually up around $930, so it's not far off.

Also, after thinking about it, there are actually three different ways you can hedge your position.

A: Buy (not sell as I erroneously said earlier) 8, 1170 IWM puts and Sell 8, 1190 IWM puts [-1 Delta]

B: Sell 2, 1220 IWM puts [+38 Delta] (This is what I did in my February trade when I encountered a Delta Vega problem.)

C: Buy 1, 116 IWM call [-28 Delta]

The graphs of A & B are almost identical. C is similar with a little more downside protection.

I'm exhausted right now. I'll put up some graphs in the morning before the market opens.

[barn32]

[The DOW futures were down -119 at one point last night, so I guess that means the DOW will end up tomorrow]

First graph is your current position as of close on Friday.
http://oi59.tinypic.com/2vx21sp.jpg

This graph is after adding 1, 116 IWM call. (C)


http://oi61.tinypic.com/2j17igo.jpg

This graph is after hedging with B & C. (The graphs are practically identical for both B & C. The Deltas are just different. One is slightly positive and the other negative.)

http://oi57.tinypic.com/2cmu9me.jpg

These are your Greeks and position before and after hedging with A.

http://oi58.tinypic.com/atrugz.jpg

[barn32]

This graph is after hedging with B & C. (The graphs are practically identical for both B & C. The Deltas are just different. One is slightly positive and the other negative.)

Change the above from B & C to A & B.

[barn32]

March 20 M3

Good looking graph. Flat T+0 line. Lots of downside protection.

http://oi59.tinypic.com/15owck6.jpg

This is how I had to structure it in order to get the desired result.

http://oi59.tinypic.com/2mra72o.jpg

[barn32]

This is an experimental two-week (1 lot) Feb 6 M3.

http://oi58.tinypic.com/2rqdg5h.jpg

[PaceAdvantage]

I added four calls a few days ago to balance my delta...let me recap from the start:

Opening Trade:
Date Time Description Fees Comm Amount
1/2/15 14:30:20 BOT +3 BUTTERFLY RUT 100 FEB 15 1220/1170/1120 PUT @9.25 CBOE -0.31 -18.99 -2,775.00
14:30:31 BOT +3 IWM 100 FEB 15 116 CALL @5.10 BATS -0.08 -12.24 -1,530.00
Calls Added:
Date Time Description Fees Comm Amount
1/27/15 15:23:50 BOT +4 IWM 100 FEB 15 120 CALL @1.69 BOX -0.10 -12.99 -676.00

Then the very next day I sold two of the calls I just added for a bit of a loss:
Date Time Description Fees Comm Amount
1/28/15 15:36:44 SOLD -1 IWM 100 FEB 15 120 CALL @.99 BOX -0.04 -0.75 99.00
15:36:44 SOLD -1 IWM 100 FEB 15 120 CALL @.99 BOX -0.04 -10.74 99.00

So I ended up booking myself a $158.12 loss in this trade due to the calls.

My current positional graph is as follows (still up over $900 currently, but you have to subtract the $158.12 I booked yesterday):

[PaceAdvantage]

I closed my February trade on Friday...made well under my $1500 goal, but was profitable nonetheless...I will post details later today...

Also entered into my March trade, and will post details of that today as well..

[barn32]

Sold my Feb 6, two-week "experimental" M3 for a $347 profit. Held it for eight days with no adjustments. It's too bad the market wasn't down today. I would have more than doubled my money.

http://oi62.tinypic.com/2vjs8ki.jpg

[barn32]

Entered a new "experimental" 10-day Feb 13 M3 trade just now. The data in the box at the top of the graph is how I structured the trade. Divide the number of RUT contracts by ten and change the 3 RUT calls to 3 IWM calls. (The IWM calls were actually $7.05, which would convert to $70.50 in OV [multiply by ten], but I leave the RUT price in OptionVue so it will have an accurate analyze graph. When I close out the trade I put in the actual buy and sell price of the IWM calls. It's unfortunate OV will not let you mix and match different types of derivatives, so until they change that feature, doing things things like this is the only way you can accurately reflect your position.)

http://oi61.tinypic.com/34yy2dy.jpg

The Greeks

http://oi60.tinypic.com/14wyn1t.jpg

[PaceAdvantage]

A little late, but as promised, the details of the February Expiration trade:Date Time Trade Description Fees Comm Amount
1/2/15 14:30:20 BOT +3 BUTTERFLY RUT 100 FEB 15 1220/1170/1120 PUT @9.25 CBOE -0.31 -18.99 -2,775.00
14:30:31 BOT +3 IWM 100 FEB 15 116 CALL @5.10 BATS -0.08 -12.24 -1,530.00
1/26/15 15:23:50 BOT +4 IWM 100 FEB 15 120 CALL @1.69 BOX -0.10 -12.99 -676.00
1/28/15 15:36:44 SOLD -1 IWM 100 FEB 15 120 CALL @.99 BOX -0.04 -0.75 99.00
15:36:44 SOLD -1 IWM 100 FEB 15 120 CALL @.99 BOX -0.04 -10.74 99.00
1/30/15 10:34:49 SOLD -2 IWM 100 FEB 15 120 CALL @.80 BOX -0.06 -11.49 160.00
15:50:52 SOLD -3 BUTTERFLY RUT 100 FEB 15 1220/1170/1120 PUT @15.80 CBOE -0.31 -18.99 4,740.00
15:51:10 SOLD -1 IWM 100 FEB 15 116 CALL @2.46 MIAX -0.04 -0.75 246.00
15:51:10 SOLD -1 IWM 100 FEB 15 116 CALL @2.46 MIAX -0.04 -0.75 246.00
15:51:10 SOLD -1 IWM 100 FEB 15 116 CALL @2.46 MIAX -0.04 -10.74 246.00
-------------------------
-1.06 -98.43 855.00
-------------------------
+755.51I made roughly half of my profit goal...1,500...after commissions. Not great, but better than a losing month.



PaceAdvantage M3 Trading Tour 2015
_______________________________
January...+311.93
February..+755.51
-----------------------
TotalYTD..+1,067.44

[PaceAdvantage]

And here are the details for the March trade that I entered a few days ago:

Date Time Trade Description Fees Comm Amount
1/30/15 11:02:59 BOT +3 BUTTERFLY RUT 100 MAR 15 1200/1150/1100 PUT @8.90 CBOE -0.31 -18.99 -2,670.00
11:04:30 BOT +3 IWM 100 MAR 15 116 CALL @4.08 CBOE -0.08 -12.24 -1,224.00I am already in grave danger of having to roll up...

[Dick Schmidt]

Not entirely sure I understand all of this, but it does seem like a hell of a lot of work for a small reward. It also seems to take months, if not a year or more, to realize those profits. Wish I understood this better.

Dick

My whole body cries out against the inhumanity of regular employment.

[PaceAdvantage]

Not entirely sure I understand all of this, but it does seem like a hell of a lot of work for a small reward. It also seems to take months, if not a year or more, to realize those profits. Wish I understood this better.

Dick

My whole body cries out against the inhumanity of regular employment.Actually, not much work at all really (speaking from my experience only...barn's may vary). You only need to look at your position once or twice a day if that much...your risk is always limited...there is very, very little risk of getting crushed overnight, and even if you do, like I said, you know your max risk at all times.

And this is a monthly trade...my goal right now is to make $1500 per month, as I am only trading a "3 lot" at the moment which isn't much...

Each trade is opened and closed in approximately 30 days.

[barn32]

I didn't "have to" adjust my Feb 19 M3, but I did for several reasons.

1. I was outside the tent with a Delta over -50
2. My Vega was positive
3. I just didn't like the look of my position

Rolling moved my Vega from +105 to -939.

I also debated between rolling 20 or 30 points and I settled at 30. That could be a mistake as well getting closer to expiration.

Then again, maybe I should have just waited, but what is, is.

Below are the before and after photos

http://oi59.tinypic.com/2dsh5ad.jpg


http://oi60.tinypic.com/25q6pad.jpg

[barn32]

Not entirely sure I understand all of this, but it does seem like a hell of a lot of work for a small reward. It also seems to take months, if not a year or more, to realize those profits. Wish I understood this better.If you have any specific questions I would be more than happy to try and help.

[da_ksk]

What has been the max lost that you had with this trading?

[barn32]

For me, trading one lot, I think it was around $400. That was my first trade with the M3, and I made a lot of mistakes.

I made entry mistakes. I got bad fills, and I purchased some wrong contracts.

I also didn't really know what I was doing and was just flying by the seat of my pants.

Overall, I think if you win 9 or 10 months out of 12 you're doing about right.

Don't forget, you don't have to take a "max loss." Or a max win for that matter. You can always bail out early.

[barn32]

I ended up converting my 2nd "experimental" 10-day M3 to a straight vertical today.

I didn't do a roll but I did hedge with 23 1160/1180 verticals along the way. After selling off the calls and the RUT butterfly I'm left with just the verticals. Before and after photos below.

As long as IWM ends up above 118 by Friday, I'll wind up with an appx. profit of $650.

http://oi58.tinypic.com/2q08x93.jpg

http://oi61.tinypic.com/2h84ewl.jpg

[barn32]

My Feb 20th trade has finally come into the money. I've added in quite a few verticals, and I just added 10 more in the form of a RUT vertical. (My delta was -200 and that brought it down to -66.)

I have 25, 1160/1180 and 7, 1170/1190 verticals altogether. There are nine days until expiration.

The trade is currently around $400 to the good.

http://oi57.tinypic.com/2cpxor8.jpg

[PaceAdvantage]

I'm still perplexed as to why your "left wing" always slopes sharply DOWN as price heads towards 0...it should be flat...with a set max loss limit...one of us is doing something wrong, and I think it's you given the losses you would incur should a "black swan" develop overnight one day.

The market doesn't even have to gap down much, and you'll be down 50-100k if I read that graph right....no bueno

[barn32]

I'm still perplexed as to why your "left wing" always slopes sharply DOWN as price heads towards 0...it should be flat...with a set max loss limit...one of us is doing something wrong, and I think it's you given the losses you would incur should a "black swan" develop overnight one day.

The market doesn't even have to gap down much, and you'll be down 50-100k if I read that graph right....no buenoYou make a good point, and now I'm going to have trouble sleeping tonight. :eek:

I could always do something like this, which has some interesting possibilities. Problem is, the Vega is +300.

http://oi60.tinypic.com/24azlm9.jpg

[PaceAdvantage]

I had to roll up my butterfly today...will post details later...I'm currently down about $200 after today...

[barn32]

Rolled my Mar 20 M3 30 points and added 7 +119/-120 IWM verticals.

I also sold off the three extra IWM puts.

So with the verticals it now looks like this:
+30 1240
-7 1200
-53 1190
+30 1140

http://oi57.tinypic.com/2cdwpzs.jpg

Greeks

http://oi57.tinypic.com/e14wma.jpg

[PaceAdvantage]

Updated March Trade box score (with roll up):Date Time Trade Description Fees Comm Amount
1/30/15 11:02:59 BOT +3 BUTTERFLY RUT 100 MAR 15 1200/1150/1100 PUT @8.90 CBOE -0.31 -18.99 -2,670.00
11:04:30 BOT +3 IWM 100 MAR 15 116 CALL @4.08 CBOE -0.08 -12.24 -1,224.00
2/12/15 15:42:46 SOLD -3 BUTTERFLY RUT 100 MAR 15 1200/1150/1100 PUT @6.50 CBOE -0.31 -18.99 1,950.00
15:43:34 BOT +3 BUTTERFLY RUT 100 MAR 15 1240/1190/1140 PUT @11.45 CBOE -0.31 -18.99 -3,435.00And current position (delta is over 10...not doing anything yet):

[barn32]

I've started doing a series of rolling two and three-week 1-lot M3s. I've done five so far and two are ongoing. The first three were profitable.

I started one on Feb 11th with a Feb 27th expiration. I rolled it 30 points and added some verticals on the 17th for a very tiny loss. I was in the trade 13 days and closed it out this morning, four days from expiration, for a $506 profit.

These trades are good practice for managing your positions at or near expiration, and they don't take two months to unwind.

http://oi62.tinypic.com/nr0obo.jpg

[PaceAdvantage]

It should only take one month to unwind...you're supposed to get in around 50 days to expiration and get out at 20 DTE...

[barn32]

It should only take one month to unwind...you're supposed to get in around 50 days to expiration and get out at 20 DTE...That would be very nice, but it has yet to happen that way for me. All of the two-month ones I have done went very close to expiration before I could get out.

[PaceAdvantage]

BTW, I added a vertical a few days ago...I'm sitting around breakeven to down a hund or two depending on time of day...lol...

I would tend to hold past 20DTE only if I were where I am now...about breakeven...if I were up substantially or down substantially, I would automatically bail at 20DTE...risking good profit or risking further damage isn't worth it to try and get back to even or break the bank. That's why we have these rules in place...lol

[barn32]

This is the best position I've been in at this point in time since I started doing these. I really like the appearance of my graph.

It's 22 days until expiration, and I'm up around $325. I have 35 points of downside protection. My upside looks fine. If my vega turns positive and/or my delta gets too high I can simply add more verticals. If a roll becomes necessary, I have plenty of time to do that as well.

As far as getting out at 20 DTE is concerned, I personally think that leaves too much money on the table. The 20 DTE exit point is more of a guideline than a hard and fast rule in my opinion, and this is especially true if you have some experience managing postitions close to expiration.

Also don't forget, that the closer you get to expiration the more that theta (time decay) will start to kick in. Once you get close to the end these things can get very profitable very quickly.

As an example in one of my short term M3s I was down $21 at the close on Friday with seven days until expiration. At the close on Monday (with the RUT up only 3 points) my position was up $300.

Theta works in your favor over the weekends as well.
http://oi57.tinypic.com/2w4xwz8.jpg

[PaceAdvantage]

If there's one thing that's been pounded into my head about options over the last couple years, especially when trading credit spreads, is to NEVER ride it out until expiration...or close to expiration....

Your goal is to take a percentage of the total profit...don't get greedy...if you have this thing figured out and you want to make more money, simply trade more contracts.

Options get way too reactive the closer they get to expiration...as you can see by my almost THIRTY delta at this point...post to follow...LMAO

[PaceAdvantage]

Updated March Trade box score (with roll up + vertical):Date Time Trade Description Fees Comm Amount
1/30/15 11:02:59 BOT +3 BUTTERFLY RUT 100 MAR 15 1200/1150/1100 PUT @8.90 CBOE -0.31 -18.99 -2,670.00
11:04:30 BOT +3 IWM 100 MAR 15 116 CALL @4.08 CBOE -0.08 -12.24 -1,224.00
2/12/15 15:42:46 SOLD -3 BUTTERFLY RUT 100 MAR 15 1200/1150/1100 PUT @6.50 CBOE -0.31 -18.99 1,950.00
15:43:34 BOT +3 BUTTERFLY RUT 100 MAR 15 1240/1190/1140 PUT @11.45 CBOE -0.31 -18.99 -3,435.00
2/23/15 10:03:56 BOT +1 VERTICAL RUT 100 MAR 15 1190/1200 CALL @7.58 CBOE -0.06 -11.49 -758.00
I'm just about ready to throw in the towel on this one and take a loss...my delta is off the charts at -34 and I'm down about $300 at this point (factoring in the loss taken when I rolled up the butterfly earlier)...I'll hold until tomorrow, but that's probably going to be it for me...

I made the mistake of not buying more verticals the other day...thought I could get away with something, but this market seems confused...the only thing it's not confused about is that it does NOT want to go down... :lol: :lol: :lol:

[barn32]

Adding more verticals would have helped. I have some questions about your graph I've included below.


http://oi58.tinypic.com/14ukidz.jpg

[PaceAdvantage]

My current position is 1238-1239 (the middle of the shaded area)

RUT has yet to reach my roll point (1250) since I first rolled back on 2/12. There was never a reason to roll, and there still isn't...

And my Vega just turned positive today for the first time.

Yes, I screwed up by not adding more verticals....

[barn32]

OK, I think I answered some of my own questions about your graph. Current position is 1238, obviously.

Your position is fixable. Add some verticals until your T+0 line straightens out. You can center the verticals off of your short strike.

Add enough verticals to bring your delta down to a reasonable number and that also makes your Vega negative.

As long as you don't have to roll, just keep adding verticals when your delta/vega numbers get out of whack.

In one of my short term M3s I had 23 verticals at one point. When I closed the position, all of my profit came from those verticals.

[PaceAdvantage]

Well, considering tomorrow is 20DTE, I think I'm going to take the loss...I personally think it's too dangerous and too late in the game to try and fix it now...but I'll take a look and see what I think...

[PaceAdvantage]

Fisher from the FED just said markets have OVERSHOT and we are in for a correction...oh how I hope the market puts stock in those words... :lol:

I'll take a minor "irrational exuberance" moment... :lol: :lol:

[barn32]

Well, considering tomorrow is 20DTE, I think I'm going to take the loss...I personally think it's too dangerous and too late in the game to try and fix it now...but I'll take a look and see what I think...You have to do of course what ever makes you comfortable.

Looking at your graph your downside has lots of protection. By adding verticals you will reduce your downside risk somewhat, but not that much--there is always a tradeoff.

With TOS can you close out the trade but still trade it on paper? In other words, manage the trade as if you were still in it to see how it would end up after doing a lot of adjustments?

[barn32]

Fisher from the FED just said markets have OVERSHOT and we are in for a correction...oh how I hope the market puts stock in those words... :lol:

I'll take a minor "irrational exuberance" moment... :lol: :lol:This is simply my opinion and I could be very wrong, but I don't pay any attention to the news and I think we've already had our correction...Dec/Jan.

[PaceAdvantage]

TOS does have certain features that allow you to trade in the past, but I'm not sure how robust it is...I'll have to look into it...I do know their "OnDemand" feature takes a few days to add recent data...it's an interesting idea and I'll have to see, perhaps in a week or two, how things would have played out if I would hold onto this one...

[PaceAdvantage]

Just closed out the March trade for a loss -359.98:Date Time Trade Description Fees Comm Amount
1/30/15 11:02:59 BOT +3 BUTTERFLY RUT 100 MAR 15 1200/1150/1100 PUT @8.90 CBOE -0.31 -18.99 -2,670.00
11:04:30 BOT +3 IWM 100 MAR 15 116 CALL @4.08 CBOE -0.08 -12.24 -1,224.00
2/12/15 15:42:46 SOLD -3 BUTTERFLY RUT 100 MAR 15 1200/1150/1100 PUT @6.50 CBOE -0.31 -18.99 1,950.00
15:43:34 BOT +3 BUTTERFLY RUT 100 MAR 15 1240/1190/1140 PUT @11.45 CBOE -0.31 -18.99 -3,435.00
2/23/15 10:03:56 BOT +1 VERTICAL RUT 100 MAR 15 1190/1200 CALL @7.58 CBOE -0.06 -11.49 -758.00
2/27/15 14:57:19 SOLD -1 VERTICAL RUT 100 MAR 15 1190/1200 CALL @8.50 CBOE -0.06 -11.49 850.00
15:38:08 SOLD -3 BUTTERFLY RUT 100 MAR 15 1240/1190/1140 PUT @9.65 CBOE -0.31 -18.99 2,895.00
15:38:23 SOLD -3 IWM 100 MAR 15 116 CALL @7.19 CBOE -0.12 -12.24 2,157.00
-------------------------
-359.98

PaceAdvantage M3 Trading Tour 2015
_______________________________
January...+311.93
February..+755.51
March......-359.98
-----------------------
TotalYTD..+707.46

[PaceAdvantage]

And I opened my April trade today:Date Time Trade Description Fees Comm Amount
2/27/15 15:58:30 BOT +3 BUTTERFLY RUT 100 APR 15 1260/1210/1160 PUT @11.00 CBOE -0.31 -18.99 -3,300.00
15:58:53 BOT +4 IWM 100 APR 15 120 CALL @4.34 CBOE -0.10 -12.99 -1,736.00

[barn32]

Just closed out the March trade for a loss -359.98:I don't think I would have given up on your position. I went back and put it into OptionVue the way I would have traded it. Assuming Mar 20th expirations, and the prices wouldn't be exact of course, but as my delta got over 100, I would have added a 1 RUT vertical +1190/-1210 on or about the:

18th
23rd
24th
26th and
2nd of March

Even with the roll, doing so would put the position up ~$260 with a graph that looks like this:

http://oi59.tinypic.com/2l9mon7.jpg

The upper dashed line is the potential 9 days from now.
The position would still be up if the RUT had stayed flat today instead of being down around ten points.

Compare this to my Mar 20th M3, which is up around $430 right now, where I also had to do a roll and I added verticals on the:

23rd
24th
25th and
Mar 2nd


http://oi62.tinypic.com/mtuqle.jpg

Of course you do have two other problems. One is that TOS doesn't give you nearly as good of analytical ability as OV, and the other is commissions. Adding lots of verticals, especially IWM verticals is expensive if you're paying a lot in commissions, which can make a person reluctant to do a trade.

One RUT vertical is much cheaper than nine IWM verticals, but with IB versus TOS there is a much bigger difference.

If I do a five lot IWM vertical spread in IB it costs around $3.50. I'm guessing it costs around $35 with TOS. I bought a 1 RUT vertical spread yesterday in one of my positions and the commission was .68¢.

http://oi61.tinypic.com/19mbmx.jpg

[barn32]

I closed out (except for one vertical) my Mar 6 M3 that I opened on Feb 17. It had a 17 day expiration window.

I'm doing these weekly now. I skip over my monthly expiration date so as not to get too confused. I opened a Mar 27th trade today (24 DTE).

My days till expiration on these trades varies anywhere from 10 days to around three weeks.

As you can see by the first graph there wasn't too much more profit to be had unless the RUT sinks down pretty big in the next two days (upper dashed line), so I decided to exit with 3 days until expiration.

This trade had one roll.

If the RUT closes anywhere above 1219, I'll show a total profit of about $540. (Currently up $411.)

The second graph is the current position with just the vertical left open. (I put on this vertical yesterday, by the way.)

http://oi59.tinypic.com/1zh2s90.jpg

http://oi59.tinypic.com/2cptkxw.jpg

[PaceAdvantage]

I don't think I would have given up on your position. I went back and put it into OptionVue the way I would have traded it. Assuming Mar 20th expirations, and the prices wouldn't be exact of course, but as my delta got over 100, I would have added a 1 RUT vertical +1190/-1210 on or about the:

18th
23rd
24th
26th and
2nd of March

Even with the roll, doing so would put the position up ~$260 with a graph that looks like this:

http://oi59.tinypic.com/2l9mon7.jpg

The upper dashed line is the potential 9 days from now.
The position would still be up if the RUT had stayed flat today instead of being down around ten points.

Compare this to my Mar 20th M3, which is up around $430 right now, where I also had to do a roll and I added verticals on the:

23rd
24th
25th and
Mar 2nd


http://oi62.tinypic.com/mtuqle.jpg

Of course you do have two other problems. One is that TOS doesn't give you nearly as good of analytical ability as OV, and the other is commissions. Adding lots of verticals, especially IWM verticals is expensive if you're paying a lot in commissions, which can make a person reluctant to do a trade.

One RUT vertical is much cheaper than nine IWM verticals, but with IB versus TOS there is a much bigger difference.

If I do a five lot IWM vertical spread in IB it costs around $3.50. I'm guessing it costs around $35 with TOS. I bought a 1 RUT vertical spread yesterday in one of my positions and the commission was .68¢.

http://oi61.tinypic.com/19mbmx.jpgIt's $9.99 + $.75 per contract...so not $35, but $17.49...still a ton more expensive...but not quite as much as you thought.

[PaceAdvantage]

My plan is to follow the rules more religiously from here on out. If Delta is going to close the day near 10 or over, I will buy verticals to push it down...no ifs ands or buts.

If price moves 10 pts past my upper long strike or 20 pts past my short strike near end of day, I roll.

I'm just going to blindly follow the rules for now and stop adding my interpretation, or my hopes and dreams... :lol: :lol:

[barn32]

One other thing that might be helpful. If your position is outside the right side of the tent drawing closer to expiration, even if you're close to a roll point, that's not necessarily a bad thing. In fact, it can be a very nice position to be in--and very profitable. It's yet to happen to me, but this month could be the first time.

It's the type of position you can just let expire if you like. Assuming you've properly adjusted, your upside loss is almost nonexistent and you should have lots of room to the downside.

But there is one thing John Locke advocates when your Delta is over 50 and you start to drift outside the right of the tent, and that is to adjust your Delta until it is back under 50. (And of course we are usually talking about a negative Delta.)

And as usual it can wait a day, which is part of the beauty of this trade. There is no real big rush to make adjustments, which is what I'm starting to realize albeit very slowly.

If your Delta is high and you have a positive Vega, and a vertical won't solve your problem, then it's probably time to just go ahead and roll. If you're very close to expiration with this problem, then bailing out might be the right play.

Adjust if your Delta is over 100 inside the tent and over 50 outside to the right of the tent.

(If you're outside to the left of the tent it's time to file for bankruptcy.)

[reckless]

I am truly envious of all you guys. I could never succeed doing what you guys do.

My question is this-- What is the reason why any position should be taken?

Thanks.

[barn32]

I am truly envious of all you guys. I could never succeed doing what you guys do.

My question is this-- What is the reason why any position should be taken?

Thanks.I'm not sure I completely understand your question, but if you're asking why you would even put on the trade in the first place my answer would be that you're trying to take advantage of time decay...namely your middle strike options.

If the position does absolutely nothing you'll make more money from the two options you sold than you'll lose from the two that you bought. If the position goes up or down slightly you'll win. If it starts moving strongly in one direction or the other, but not too quickly, you can adjust and still have enough time to come out ahead.

Sometimes the trade will just get away from you and you're sunk no matter what you do. For example, it could go up strongly and then down strongly and then up strongly. That's a bad scenario, but you're going to have some losing months. (This actually happened to me once, and I still managed to eek out a small profit.)

The M3 is a very forgiving trade, which for the most part is trying to remain Delta neutral. In other words, you're not that concerned with market direction. You're basically just reacting to market direction.

Not sure I answered your question. Just some thoughts.

[barn32]

Exited my Mar 20, M3 this morning.

The dot about two inches above the 1239 level is where the trade was sitting when I closed it out. It was well outside the tent, but that was not a worry. Adding verticals wouldn't do much for the position at this point, because there wasn't much if any upside profit left in the trade. That made it a good time to exit.

OptionVue says my profit was $930, but IB has it closer to $800.

I didn't get full value out of the trade, (are you ever going to?) but it was one of my better M3s as far as managing the position is concerned. The trade was never really much of the problem right from the beginning. One roll and some verticals were all that was needed.

http://oi57.tinypic.com/rh7az4.jpg

[PaceAdvantage]

Interesting...glad to see you came out ahead.

I haven't done a thing with my April, but it is now pushing the +10 Delta point...I'm not going to do a thing until after tomorrow's Fed announcement...

[PaceAdvantage]

Had to add 1 RUT vertical after yesterday's Fed-fueled buying binge...hey, finally a Fed move in the futures market that did NOT include a head fake at the beginning...lol

Current box score:
Date Time Trade Description Fees Comm Amount
2/27/15 15:58:30 BOT +3 BUTTERFLY RUT 100 APR 15 1260/1210/1160 PUT @11.00 CBOE -0.31 -18.99 -3,300.00
15:58:53 BOT +4 IWM 100 APR 15 120 CALL @4.34 CBOE -0.10 -12.99 -1,736.00
3/18/15 15:58:38 BOT +1 VERTICAL RUT 100 APR 15 1210/1220 CALL @7.94 CBOE -0.06 -11.49 -794.00


And current chart (my delta still high):

[PaceAdvantage]

Near end of day Thursday, I added another vertical...which again, only took my Delta down to about 10...I don't want to pile on too many verticals with the price this close to my upper long strike.

Or maybe I do?

[john del riccio]

Hey Pace,

LONG time .....as luck would have it, I have been studying OPTIONS myself. I come back here to see whats going in the thoroughbred world and I find myself looking at Options :)

John

[PaceAdvantage]

Hi John,

REAL LONG time...lol...good to hear from you again...yup...we've been branching out here lately...I'm enduring some pain with this trade at the moment...things haven't been as easy in 2015 as they were in 2014...but there is still plenty of year to go...

[john del riccio]

I have read through the thread, will set up some simulated trades and get a feel for how it works in more detail. Thanks.

John

[PaceAdvantage]

What platform are you using?

[john del riccio]

Tradestation. Looks like you are using TOS.

[PaceAdvantage]

Yes, using TOS...used to use TradeStation when I was more into trading futures...wrote quite a few automated scripts...

[leekaufman]

Hi guys, I've been lurking for a few months, reading your many M3 related posts. Thank you for sharing.

You'd probably be interested in another forum (capitaldiscussions.com) that has a much larger and more experienced community that trades this trade. Best, Lee

[Tape Reader]

Yes, using TOS...used to use TradeStation when I was more into trading futures...wrote quite a few automated scripts...

Do you write scripts for TOS?

[PaceAdvantage]

I haven't...have you tried? I got the impression it was pretty limited...

[Tape Reader]

I haven't...have you tried? I got the impression it was pretty limited...

I have not tried and I have limited ability in programing. Several months back TOS announced that they were soon to have “trading off trend lines.” This is a feature that I would love as all of my trades are based on lines. So far, TOS has not delivered on their promise.

[PaceAdvantage]

Finally, a day my April M3 can hang its hat on...it so flirted with requiring a roll up, but it never hit that point, thankfully...I will try and post a graph tonight, along with that vertical I added last week that I never posted the details of...

[PaceAdvantage]

April M3 update:

Date Time Trade Description Fees Comm Amount
2/27/15 15:58:30 BOT +3 BUTTERFLY RUT 100 APR 15 1260/1210/1160 PUT @11.00 CBOE -0.31 -18.99 -3,300.00
15:58:53 BOT +4 IWM 100 APR 15 120 CALL @4.34 CBOE -0.10 -12.99 -1,736.00
3/18/15 15:58:38 BOT +1 VERTICAL RUT 100 APR 15 1210/1220 CALL @7.94 CBOE -0.06 -11.49 -794.00
3/19/15 15:59:55 BOT +1 VERTICAL RUT 100 APR 15 1210/1220 CALL @8.25 CBOE -0.06 -11.49 -825.00


And the graph:

[PaceAdvantage]

Just sold my verticles and booked a -283 loss in the process...

Date Time Trade Description Fees Comm Amount
2/27/15 15:58:30 BOT +3 BUTTERFLY RUT 100 APR 15 1260/1210/1160 PUT @11.00 CBOE -0.31 -18.99 -3,300.00
15:58:53 BOT +4 IWM 100 APR 15 120 CALL @4.34 CBOE -0.10 -12.99 -1,736.00
3/18/15 15:58:38 BOT +1 VERTICAL RUT 100 APR 15 1210/1220 CALL @7.94 CBOE -0.06 -11.49 -794.00
3/19/15 15:59:55 BOT +1 VERTICAL RUT 100 APR 15 1210/1220 CALL @8.25 CBOE -0.06 -11.49 -825.00
3/27/15 10:25:52 SOLD -2 VERTICAL RUT 100 APR 15 1210/1220 CALL @6.86 CBOE -0.10 -12.99 1,372.00

[PaceAdvantage]

I just exited my April M3 trade for a small profit. I consider anything above a loss this month to be a moral victory.

Date Time Trade Description Fees Comm Amount
2/27/15 15:58:30 BOT +3 BUTTERFLY RUT 100 APR 15 1260/1210/1160 PUT @11.00 CBOE -0.31 -18.99 -3,300.00
15:58:53 BOT +4 IWM 100 APR 15 120 CALL @4.34 CBOE -0.10 -12.99 -1,736.00
3/18/15 15:58:38 BOT +1 VERTICAL RUT 100 APR 15 1210/1220 CALL @7.94 CBOE -0.06 -11.49 -794.00
3/19/15 15:59:55 BOT +1 VERTICAL RUT 100 APR 15 1210/1220 CALL @8.25 CBOE -0.06 -11.49 -825.00
3/27/15 10:25:52 SOLD -2 VERTICAL RUT 100 APR 15 1210/1220 CALL @6.86 CBOE -0.10 -12.99 1,372.00
15:56:31 SOLD -3 BUTTERFLY RUT 100 APR 15 1260/1210/1160 PUT @13.40 CBOE -0.31 -18.99 4,020.00
15:56:48 SOLD -2 IWM 100 APR 15 120 CALL @4.01 BOX -0.07 -1.50 802.00
15:56:48 SOLD -1 IWM 100 APR 15 120 CALL @4.01 BOX -0.04 -10.74 401.00
15:56:48 SOLD -1 IWM 100 APR 15 120 CALL @4.01 BOX -0.04 -0.75 401.00
-------------------------
+239.98

PaceAdvantage M3 Trading Tour 2015
_______________________________
January...+311.93
February..+755.51
March......-359.98
April........+239.98
-----------------------
TotalYTD..+947.44

[PaceAdvantage]

Put on my May trade today:

Date Time Trade Description Fees Comm Amount
3/30/15 12:41:51 BOT +3 BUTTERFLY RUT 100 MAY 15 1280/1230/1180 PUT @10.61 CBOE -0.31 -18.99 -3,183.00
12:43:19 BOT +5 IWM 100 MAY 15 123 CALL @3.92 -0.12 -13.74 -1,960.00


Chart:

[barn32]

First graph is Apr M3 with 8 days until expiration. Currently Plus ~$1200.


http://oi57.tinypic.com/ws7hh1.jpg

Second graph is May M3 with 39 days until expiration, currently underwater ~$600. (This is due to several errors on my part one of which was buying a put instead of a call and then watching the market rally.)


http://oi61.tinypic.com/2zs7lt4.jpg

[PaceAdvantage]

Bought a vertical on Friday as delta was sitting around 13..

Date Time Trade Description Fees Comm Amount
3/30/15 12:41:51 BOT +3 BUTTERFLY RUT 100 MAY 15 1280/1230/1180 PUT @10.61 CBOE -0.31 -18.99 -3,183.00
12:43:19 BOT +5 IWM 100 MAY 15 123 CALL @3.92 -0.12 -13.74 -1,960.00
4/10/15 15:58:09 BOT +1 VERTICAL RUT 100 MAY 15 1230/1240 CALL @7.64 CBOE -0.06 -11.49 -764.00

[barn32]

Closed out the butterfly and the long calls on the Apr M3, and I'm left with two vertical spreads 40 points away from losing money.

Sadly, had I waited 30 minutes to close out the butterfly I would have made an extra $1000. (The RUT went from +2.00 to -6.50)

Max profit should be somewhere around $1700.

http://oi57.tinypic.com/2hznyti.jpg

[barn32]

Was about 15 points over my long strike, so I rolled my May M3 back 30 points. I also added 4, 1240/1250 RUT verticals. Along with all of my other verticals including some call verticals my position is about $600 under water and now looks like this: (My earlier error cost me about $650, so without that mistake the trade would basically be about even.)

http://oi58.tinypic.com/t0jhj6.jpg

http://oi60.tinypic.com/otlzz8.jpg

[PaceAdvantage]

I added two more RUT verticals yesterday:

Date Time Trade Description Fees Comm Amount
3/30/15 12:41:51 BOT +3 BUTTERFLY RUT 100 MAY 15 1280/1230/1180 PUT @10.61 CBOE -0.31 -18.99 -3,183.00
12:43:19 BOT +5 IWM 100 MAY 15 123 CALL @3.92 -0.12 -13.74 -1,960.00
4/10/15 15:58:09 BOT +1 VERTICAL RUT 100 MAY 15 1230/1240 CALL @7.64 CBOE -0.06 -11.49 -764.00
4/20/15 14:31:29 BOT +2 VERTICAL RUT 100 MAY 15 1230/1240 CALL @7.80 -0.12 -12.99 -1,560.00

[barn32]

May M3 finally poked its nose above water. (+$324.00)

http://oi57.tinypic.com/10qxkic.jpg

[PaceAdvantage]

My May M3 is up about $400-500...technically, I was supposed to exit on Friday...I did not...the market, for months now, has been hitting a wall at the point it is currently at...I'm waiting for another pullback...

If, instead, the market breaks out to new highs, then I will exit with what I expect to be a small loss at worst...worth the risk in my opinion, given I am ahead at this point.

[_______]

I'm really bad at predicting market direction but given the months long sideways movement, I'm expecting the next big move to be up. 1Q earnings expectations were set low and are so far exceeding the low bar. I think that will get factored into prices over the next few weeks.

But again...really bad at this sort of thing.

[badcompany]

The low volume of the past week makes me think there's not much incentive for another pullback.

I'm guessing an upside move from here.

[PaceAdvantage]

I agree, the daily chart is telling me this market is going up...however, I feel I'm in a position where waiting to see what happens is worth the risk...we have Apple earnings and a Fed Meeting this week...the uncertainty is there, and there has been plenty of selling off of highs during this channel run since February...I don't need all that much selling to take this trade to my profit goal...

[PaceAdvantage]

The RUT is down 12 points as I type this and my position is up about $400 over Friday's close...tempting....

With gold up almost $28 today alone, I don't see how anyone could have remained long this morning....but that was just me.

[PaceAdvantage]

Up almost $600 on the day...RUT down almost 17 points...greed vs. fear now at a fever pitch...

[PaceAdvantage]

Fear won out...I'm out...details to follow...I kind of took it in the shorts exiting my verticals just now...tells me the market is going up from this point on

[PaceAdvantage]

Date Time Trade Description Fees Comm Amount
3/30/15 12:41:51 BOT +3 BUTTERFLY RUT 100 MAY 15 1280/1230/1180 PUT @10.61 CBOE -0.31 -18.99 -3,183.00
12:43:19 BOT +5 IWM 100 MAY 15 123 CALL @3.92 -0.12 -13.74 -1,960.00
4/10/15 15:58:09 BOT +1 VERTICAL RUT 100 MAY 15 1230/1240 CALL @7.64 CBOE -0.06 -11.49 -764.00
4/20/15 14:31:29 BOT +2 VERTICAL RUT 100 MAY 15 1230/1240 CALL @7.80 -0.12 -12.99 -1,560.00
4/27/15 13:32:01 SOLD -3 BUTTERFLY RUT 100 MAY 15 1280/1230/1180 PUT @16.55 -0.35 -18.99 4,965.00
13:32:24 SOLD -5 IWM 100 MAY 15 123 CALL @2.54 CBOE -0.18 -13.74 1,270.00
13:54:36 SOLD -3 VERTICAL RUT 100 MAY 15 1230/1240 CALL @7.11 CBOE -0.18 -14.49 2,133.00
-------------------------
+795.25
PaceAdvantage M3 Trading Tour 2015
_______________________________
January...+311.93
February..+755.51
March......-359.98
April........+239.98
May.........+795.25
-----------------------
TotalYTD..+1,742.69

[_______]

Since I'm not familiar with what you and barn are doing, have a couple of probably dumb questions:

1) Are the positions you have similar to standard options where you are buying to open and selling to close? Are there traders on the other side writing these instruments?

2) If yes, are you selling to close at market or putting in a limit order.

Just wondering as I have noticed that the options I hold (all LEAPS expiring in 2016 or 2017) always seem to trade down relative to the underlying asset throughout the day until just before close when there is a flurry of activity bringing the option price back up.

All this is on very low volume of course given the long expiration dates.

[PaceAdvantage]

I am trading options on the Russell 2000 (RUT)...specifically, long put butterflies in RUT and also buying IWM (Russell 2000 ETF) call options to bring Delta to 0....that's the opening trade. Then as time goes on (we hold for about a month), if delta starts to get out of whack, we might buy RUT call verticals or buy more IWM calls outright if delta is above 10...if delta moves below -10, then we would do the opposite.

They are fairly liquid as far as options go (IWM way more liquid than RUT)...I am buying and/or selling at any time I think is right...trading just like stocks or futures

[PaceAdvantage]

Guess I should have listened to greed...market did not move up like I thought after I exited...

[barn32]

Since I'm not familiar with what you and barn are doing...Barn isn't either...he just thinks he is.

[barn32]

Since I'm not familiar with what you and barn are doing, have a couple of probably dumb questions:

1) Are the positions you have similar to standard options where you are buying to open and selling to close? Are there traders on the other side writing these instruments?

2) If yes, are you selling to close at market or putting in a limit order.

Just wondering as I have noticed that the options I hold (all LEAPS expiring in 2016 or 2017) always seem to trade down relative to the underlying asset throughout the day until just before close when there is a flurry of activity bringing the option price back up.

All this is on very low volume of course given the long expiration dates.1. Yes. Yes. Options are zero-sum. For every option bought/sold there is an opposite trade.

2. Depends. With options it's not usually a good idea to buy/sell at the market because of the wide bid/ask spreads. It's better to try and find equilibrium around the mid-point. If you put in a market order you're going to take the worst of it.

The best plan is to enter your order above/below the midpoint and hope you can get slightly the best of it. But if you want to get filled quickly entering at the mid-point (or slightly away from it) will usually (but not always) get the job done.

Most of the action in almost all markets are at the open and the close. Exceptions of course, but I'm guessing that what you're seeing at the end of the day are traders taking or closing positions bring things somewhat back into line.

[_______]

1. Yes. Yes. Options are zero-sum. For every option bought/sold there is an opposite trade.

2. Depends. With options it's not usually a good idea to buy/sell at the market because of the wide bid/ask spreads. It's better to try and find equilibrium around the mid-point. If you put in a market order you're going to take the worst of it.

The best plan is to enter your order above/below the midpoint and hope you can get slightly the best of it. But if you want to get filled quickly entering at the mid-point (or slightly away from it) will usually (but not always) get the job done.

Most of the action in almost all markets are at the open and the close. Exceptions of course, but I'm guessing that what you're seeing at the end of the day are traders taking or closing positions bring things somewhat back into line.

Appreciate all responses. Completely identify with your first.

I guess my questions arise from the multi-leg nature of these transactions. I assume that you want to open and close them all at once to avoid exposure to market movement with just one leg. Can you actually use limit orders? If yes, how does that work with 2+ legs?

PA's comment on taking in in the shorts exiting his verticals is what made me wonder. I guess I'm assuming to exit all at once you have to place market orders. I can see why that would place you at a disadvantage.

[barn32]

Appreciate all responses. Completely identify with your first.

I guess my questions arise from the multi-leg nature of these transactions. I assume that you want to open and close them all at once to avoid exposure to market movement with just one leg. Can you actually use limit orders? If yes, how does that work with 2+ legs.A butterfly spread is the combination of a long and short vertical. It takes on this pattern:

+2
-4
+2

Which you can break down into two individual spreads. One long & one short:

+2
-2

-2
+2

You can enter the trade as a butterfly, which I think is better than "legging in." Legging in can work if you're lucky, but it can also go against you.

You can exit the trade the same way you entered by simply selling the butter. Or, you can sell one leg of the spread at a time, or you can just sell one leg, long or short, and leave the other on. I've done both.

For example, if the long vertical part of the butterfly is profitable and will likely expire out of the money you can close out the short vertical, which is most likely losing money.

PA's comment on taking in in the shorts exiting his verticals is what made me wonder. I guess I'm assuming to exit all at once you have to place market orders. I can see why that would place you at a disadvantage.I think the verticals he's referring to are hedges that he added along the way. If the vertical hedges lose money the short puts in the butterfly probably made money, and vice versa. The vertical hedges help to balance the position.

His verticals lost money because the RUT went down, but had it kept going up they would have made money and helped to offset losses on the butterfly-helping to keep the position as delta neutral as possible, which in turn gives you time to profit from the time decay of your short puts.

Adding verticals as a hedge along the way are important to do in case the market spikes up or continues to trend up.

Had he not added those verticals (or IWM calls) and the market shot up the position could start to sink.

This is where understanding the Greeks comes in. The Greeks give you valuable information about your position and how you should proceed.

My last M3 profited $1500. The butterfly and all of the verticals lost money. The long IWM call hedges is where the profit came from. Other times it might be the opposite.

It's a balancing act. You are the juggler trying to maintain equilibrium.

If you want to exit all at once you can still use limit orders, you just have to be patient. You can sell the butters and then the verticals and then the long calls.

I've exited most of my trades in pieces. First I get rid of the short puts, and then the long puts and depending on which way the market is trending at the time the long calls. Or maybe the other way around. It just depends.

And on several occasions I've closed out everything but one of the vertical spreads which will most likely expire out of the money allowing me to extract maximum profit.

Mike may have a different philosophy. It's like horse racing and poker. There are different approaches that can achieve the same results.

[PaceAdvantage]

PA's comment on taking in in the shorts exiting his verticals is what made me wonder.I say this because I first entered in a sell order at $7.35 to exit my verticals. And I ended up having to get out at $7.11 as the market started turning down on me. These verticals were the last part of my M3 trade that I was trying to exit out of. Getting out of the butterfly at the price I wanted took a little time, but eventually it came to me. The IWM calls were a cinch to exit at the current price (sold them just after the butterfly sell order was filled). They are the most liquid of the M3 components that I use.

It was the verticals that took forever...I lost $.24 trying to get out, and since I was exiting 3 verticals, I lost about $72 in profit, but that is sometimes the price of playing this game.

I'm also paying a boatload in commissions compared to some of the lower cost options houses out there...but I love the Thinkorswim platform at TD Ameritrade, so I am kind of stuck there until I find something better.

[PaceAdvantage]

Considering my profit goal per month is $1,500, I'm having a pretty crappy year so far. I hit my profit target more often than not last year, and I haven't come close once this year...but I'm still ahead, and that's all that really matters at this point.

[_______]

Okay. I won't say "got it", but I certainly have a better understanding.

Again, appreciate the time both of you have taken responding.

[barn32]

I'm also paying a boatload in commissions compared to some of the lower cost options houses out there...but I love the Thinkorswim platform at TD Ameritrade, so I am kind of stuck there until I find something better.I have ThinkorSwim, but I've never made a trade there. I've got 3K sitting there doing nothing. I can't bring myself to pay their exorbitant commissions. I was supposed to get 60 days of free trades (https://www.tdameritrade.com/specialoffer.page), but I didn't realize it and they never once mentioned it. When I found out about it I contacted them but they said it was too late.

I also use TOS for my data feed on OptionVue. It seems to be somewhat faster than the IB feed.

I also use TOS for charts.

Point being, you can still uses TOS for lots of things but make your trades elsewhere. In fact, I'd go so far as to say that what you save in commissions using IB would more than pay for a year of OptionVue.

[A side effect of all these programs I have running is a memory drain. I have 6 gigs of RAM, but I'm running up against it. I'm looking to upgrade to a new PC with 16-32 gigs of RAM to combat this.]

[PaceAdvantage]

Email tom@thinkorswim.com

He's the founder...Tom Sosnoff...the guy from tastytrade...not sure if that email address is still active for him, since TOS was taken over by TD...but it might work.

Someone on here recently told me he still has a lot of pull at TOS and if you tell him your story, you might still get your 60 days free...

If anyone else has an email address for Tom, please PM it to barn32...the above email I was able to find via a google search...

[barn32]

Email tom@thinkorswim.com

He's the founder...Tom Sosnoff...the guy from tastytrade...not sure if that email address is still active for him, since TOS was taken over by TD...but it might work.

Someone on here recently told me he still has a lot of pull at TOS and if you tell him your story, you might still get your 60 days free...

If anyone else has an email address for Tom, please PM it to barn32...the above email I was able to find via a google search...Thanks, sent him an e-mail, we'll see what happens.

[PaceAdvantage]

Opened my June M3 just now:
Date Time Trade Description Fees Comm Amount
4/29/15 14:29:51 BOT +3 BUTTERFLY RUT 100 JUN 15 1280/1230/1180 PUT @10.62 CBOE -0.35 -18.99 -3,186.00
14:31:25 BOT +5 IWM 100 JUN 15 124 CALL @3.16 CBOE -0.15 -13.74 -1,580.00

[PaceAdvantage]

And just like that, I had to shed 1 IWM contract to get my delta back under 10. I actually think I bought 1 too many yesterday...

I was actually looking to roll the entire position down and snag a couple hundred dollars profit by doing so, but I could never seemed to get filled at the price I wanted for the butterfly, so I kept it...would have been nice to book a profit and roll down though...instead I booked about a $150 loss...lol

So, subtract $150 from the P/L Open number you see on the chart below, circled in yellow.

And yes, I'm only 10 points away from having to roll down...nice down move today, eh folks?

Updated boxscore:
Date Time Trade Description Fees Comm Amount
4/29/15 14:29:51 BOT +3 BUTTERFLY RUT 100 JUN 15 1280/1230/1180 PUT @10.62 CBOE -0.35 -18.99 -3,186.00
14:31:25 BOT +5 IWM 100 JUN 15 124 CALL @3.16 CBOE -0.15 -13.74 -1,580.00
4/30/15 15:58:53 SOLD -1 IWM 100 JUN 15 124 CALL @1.75 -0.04 -10.74 175.00

[PaceAdvantage]

Tried to roll down my M3 yet again (although it technically has not violated the 20 points below short strike rule), and couldn't get filled at my minimum price. So, I jettisoned another IWM call since my delta was sitting at over 13.

I've booked a $300 loss now with these two IWM sales (plus some added commission). However, I'm up over $600 on the position that remains, which means I am net positive about $300 currently. Sure wish I could have gotten out of the butterfly at a decent price and rolled the whole thing down 20 pts...that would have been the best of all worlds.

Updated boxscore:
Date Time Trade Description Fees Comm Amount
4/29/15 14:29:51 BOT +3 BUTTERFLY RUT 100 JUN 15 1280/1230/1180 PUT @10.62 CBOE -0.35 -18.99 -3,186.00
14:31:25 BOT +5 IWM 100 JUN 15 124 CALL @3.16 CBOE -0.15 -13.74 -1,580.00
4/30/15 15:58:53 SOLD -1 IWM 100 JUN 15 124 CALL @1.75 -0.04 -10.74 175.00
5/5/15 15:59:42 SOLD -1 IWM 100 JUN 15 124 CALL @1.40 CBOE -0.04 -10.74 140.00

[barn32]

May M3 was +$851.

I entered my June M3 today in two stages. I could only get filled for one lot yesterday, so I waited till today and entered the rest for about the same price.

The first two weeks of these things are pretty much a waste in my experience, so I don't see entering now as any problem. Besides I missed out on a lot of the shenanigans.

(As I write this I'm already outside of the tent to the right, so we'll just have to see what happens.)
http://oi57.tinypic.com/2quonet.jpg

[PaceAdvantage]

So, I obviously screwed up by selling those two IWM calls...now I'm left with less protection to the upside.

I don't have much experience trading these M3s in a downward market, and I think this was probably only the second or third time in the last 16 months that I had to worry about my a delta going over +10...usually I'm fighting a negative delta dropping past -10...lol

Instead of selling my IWM calls to get my delta back in line, I should have purchased some put verticals I suppose...the opposite of what I had done in the past when the market was going up and pushing my delta down past -10...I purchased call verticals spreads...not sure why I thought selling some of my IWM calls, especially this early in the trade, was the way to go...DOH!

[barn32]

June M3 currently + $110.00.

Outside of the tent to the right. Seven points away from a roll point, but I'll probably hold on for a while even if it goes up ten to fifteen points as long as I can keep my Greeks in line. I'll just keep buying verticals.

Once it becomes unmanageable, I'll roll.

Greeks are fine.

http://oi58.tinypic.com/etfwnt.jpg

http://oi61.tinypic.com/wi3tbn.jpg

[FiveWide]

June M3 currently + $110.00.

Outside of the tent to the right. Seven points away from a roll point, but I'll probably hold on for a while even if it goes up ten to fifteen points as long as I can keep my Greeks in line. I'll just keep buying verticals.

Once it becomes unmanageable, I'll roll.

Greeks are fine.

http://oi58.tinypic.com/etfwnt.jpg

http://oi61.tinypic.com/wi3tbn.jpg

Nice Theta!!


-Five

[PaceAdvantage]

I bought one call vertical spread in the RUT near the end of the day today, simply because my delta was pushing -20. This brought it back to just under -10. I could have bought two verticals and really gotten my delta back to near zero, but I have doubts this market is going to push much higher given its proclivity to head back down after reaching this area in recent months...plus today's volume was nothing to write home about despite the sizable move.

Updated box score:
Date Time Trade Description Fees Comm Amount
4/29/15 14:29:51 BOT +3 BUTTERFLY RUT 100 JUN 15 1280/1230/1180 PUT @10.62 CBOE -0.35 -18.99 -3,186.00
14:31:25 BOT +5 IWM 100 JUN 15 124 CALL @3.16 CBOE -0.15 -13.74 -1,580.00
4/30/15 15:58:53 SOLD -1 IWM 100 JUN 15 124 CALL @1.75 -0.04 -10.74 175.00
5/5/15 15:59:42 SOLD -1 IWM 100 JUN 15 124 CALL @1.40 CBOE -0.04 -10.74 140.00
5/14/15 15:51:31 BOT +1 VERTICAL RUT 100 JUN 15 1230/1240 CALL @6.30 CBOE -0.06 -11.49 -630.00

I'm up currently about net +$500 on my June M3, given my $300 loss from selling the IWM calls a little while ago and my current $830 profit in the position I now hold.

And chart:

[barn32]

Re: June M3

My position became untenable. No matter what combination of verticals I applied either my Delta was to high, or my Vega was positive. And, since I was 15 points outside of a roll point, I just rolled it down. I was waiting for the market to come back so I wouldn't have to roll, but I can't wait forever. It may still come back. If that happens, I'll have to deal with it later.

Before the roll, profit was +$250.

This is the position before the roll:

http://oi58.tinypic.com/sxf6lk.jpg


I had two choices to balance the positon and achieve a flat T+0 line (T+0 means today plus zero days). I could add 4 IWM calls or I could find some combination of verticals. I opted for a +1110/-1130 four lot put vertical spread. The position now looks like this:

Notice how the top of the tent flattens out, and that the tent also widens. The verticals have this effect. Adding verticals reduces maximum profit and also slightly increases downside risk. In this case from 1190 to ~1217.

http://oi61.tinypic.com/wit09g.jpg

[PaceAdvantage]

I added another vertical yesterday morning...boxscore:

Date Time Trade Description Fees Comm Amount
4/29/15 14:29:51 BOT +3 BUTTERFLY RUT 100 JUN 15 1280/1230/1180 PUT @10.62 CBOE -0.35 -18.99 -3,186.00
14:31:25 BOT +5 IWM 100 JUN 15 124 CALL @3.16 CBOE -0.15 -13.74 -1,580.00
4/30/15 15:58:53 SOLD -1 IWM 100 JUN 15 124 CALL @1.75 -0.04 -10.74 175.00
5/5/15 15:59:42 SOLD -1 IWM 100 JUN 15 124 CALL @1.40 CBOE -0.04 -10.74 140.00
5/14/15 15:51:31 BOT +1 VERTICAL RUT 100 JUN 15 1230/1240 CALL @6.30 CBOE -0.06 -11.49 -630.00
5/19/15 09:47:13 BOT +1 VERTICAL RUT 100 JUN 15 1230/1240 CALL @7.00 CBOE -0.06 -11.49 -700.00

Total open position currently up $825 which means I am net positive about $500 when factoring in my IWM sales in late April and early May.

Really want this market to head back down a bit...as I am far away from rolling down and my delta is -17....ugh...

[PaceAdvantage]

I just might buy yet another vertical before EOD...I am entering the final week of my trade (a shortened week no less), so there is no time to roll...need to protect myself a bit more to the upside...it's probably a no-brainer move...my delta is at -21...but I'm up about $800-$850 net for the month and I kind of want to protect that pittance of a profit a bit more... :lol:

[PaceAdvantage]

Just decided NOT to purchase another vertical, with this downward market action at end of day...like to see that...couldn't even break yesterday's close...and an inside day on the daily charts too...

[PaceAdvantage]

Just decided NOT to purchase another vertical, with this downward market action at end of day...like to see that...couldn't even break yesterday's close...and an inside day on the daily charts too...I actually made the correct decision...miracles never cease... :lol:

[barn32]

The M3 is becoming the bane of my existence. It's a wearisome trade.

1. Large capital outlays, which takes away capital from other trades that are, in many cases, more profitable than the M3.
2. Long time frames
3. Multiple adjustments that must be made if you want to keep on top of the position.
4. I've run out of margin on several occasions.
5. OptionVue can be buggy and frustrating at times, but it does have the most accurate Greek numbers.
6. The trade can get complicated, especially when rolling or even exiting.

I've actually had better success doing shorter time frame trades (one month or less) than the longer term trades. I've had more winning trades than losing ones, and I'm up slightly overall, but I have had several disasters, which shows you what can happen if you let things get away from you. (I was out of town during one such fiasco, away from my computer and trying to trade on my phone during a time when the RUT was down 40 points in one day...tsk, tsk, tsk.) [In the interest of full disclosure, as painful as it might be, I've included a screenshot of all of my M3 trades since I started and the running totals.]

All that said I opened a small (2-lot) July 17 M3 today in my IRA account.

Here is a screenshot of my June M3. OptionVue says I'm down $344, but I'm actually down about $50. (A few days ago I was up $700 if you can believe OptionVue.) I've made multiple adjustments. My Delta was minus 700 at one point, but I just didn't feel like adjusting. I went ahead and fixed everything today.

As you can see by the graph the trade has good potential. Whether or not I will realize that potential remains to be seen.

http://oi62.tinypic.com/eprl8p.jpg

http://oi62.tinypic.com/wqwsbp.jpg

http://oi60.tinypic.com/2mdqeis.jpg

[PaceAdvantage]

Just took the opportunity to exit my June M3 on this nice little drop just now in the market...once again, I did not reach my target goal...unfortunately...it is SO DAMN HARD to get a fill anywhere near the midpoint with these butterflies, and since today was my rules-based exit day (20 days to expiration), I decided I'm not going to take any more chances and just get out with a healthy profit nonetheless....boxscore:

Date Time Trade Description Fees Comm Amount
4/29/15 14:29:51 BOT +3 BUTTERFLY RUT 100 JUN 15 1280/1230/1180 PUT @10.62 CBOE -0.35 -18.99 -3,186.00
14:31:25 BOT +5 IWM 100 JUN 15 124 CALL @3.16 CBOE -0.15 -13.74 -1,580.00
4/30/15 15:58:53 SOLD -1 IWM 100 JUN 15 124 CALL @1.75 -0.04 -10.74 175.00
5/5/15 15:59:42 SOLD -1 IWM 100 JUN 15 124 CALL @1.40 CBOE -0.04 -10.74 140.00
5/14/15 15:51:31 BOT +1 VERTICAL RUT 100 JUN 15 1230/1240 CALL @6.30 CBOE -0.06 -11.49 -630.00
5/19/15 09:47:13 BOT +1 VERTICAL RUT 100 JUN 15 1230/1240 CALL @7.00 CBOE -0.06 -11.49 -700.00
5/29/15 10:47:57 SOLD -3 BUTTERFLY RUT 100 JUN 15 1280/1230/1180 PUT @18.06 -0.35 -18.99 5,418.00
10:50:40 SOLD -3 IWM 100 JUN 15 124 CALL @1.49 -0.10 -12.24 447.00
10:53:20 SOLD -2 VERTICAL RUT 100 JUN 15 1230/1240 CALL @6.20 CBOE -0.12 -12.99 1,240.00
-------------------------
+1,201.32
PaceAdvantage M3 Trading Tour 2015
_______________________________
January...+311.93
February..+755.51
March......-359.98
April........+239.98
May.........+795.25
June........+1,201.32
-----------------------
TotalYTD..+2,944.01

[PaceAdvantage]

I was just looking at my trade records...and it looks like something unbelievable happened when I closed my butterfly...

I put that order in for $17.80 limit (the listed mid-point at that time - 10:47:57am) and got filled at $18.06. Guess I got a little lucky after all...

[PaceAdvantage]

The M3 is becoming the bane of my existence. It's a wearisome trade.

1. Large capital outlays, which takes away capital from other trades that are, in many cases, more profitable than the M3.
2. Long time frames
3. Multiple adjustments that must be made if you want to keep on top of the position.
4. I've run out of margin on several occasions.
5. OptionVue can be buggy and frustrating at times, but it does have the most accurate Greek numbers.
6. The trade can get complicated, especially when rolling or even exiting.

I've actually had better success doing shorter time frame trades (one month or less) than the longer term trades. I've had more winning trades than losing ones, and I'm up slightly overall, but I have had several disasters, which shows you what can happen if you let things get away from you. (I was out of town during one such fiasco, away from my computer and trying to trade on my phone during a time when the RUT was down 40 points in one day...tsk, tsk, tsk.) [In the interest of full disclosure, as painful as it might be, I've included a screenshot of all of my M3 trades since I started and the running totals.]

All that said I opened a small (2-lot) July 17 M3 today in my IRA account.

Here is a screenshot of my June M3. OptionVue says I'm down $344, but I'm actually down about $50. (A few days ago I was up $700 if you can believe OptionVue.) I've made multiple adjustments. My Delta was minus 700 at one point, but I just didn't feel like adjusting. I went ahead and fixed everything today.

As you can see by the graph the trade has good potential. Whether or not I will realize that potential remains to be seen.

http://oi62.tinypic.com/eprl8p.jpg

http://oi62.tinypic.com/wqwsbp.jpg

http://oi60.tinypic.com/2mdqeis.jpgI still can't fathom why the left side of your graphs all show your (T+expiration) line sloping sharply downward as price heads to 0.

On every single M3 I've traded, the left side of my graphs never slope down off the edge of the screen...they always flatten out at a max-loss level that will remain that amount even if the Russell 2000 were to go to 0.

It looks like you have unlimited loss as the price of the Russell heads down...or if not unlimited, something humongous...your max loss should not really be above $5,000 per lot traded...and it should be well BELOW $5,000 per lot at the start of the trade...it may get a bit above $5,000 as you add adjustments such as verticals or calls.

Something just doesn't look right, and I'm wondering how you get your graphs to look like that...they look nothing like my graphs (on the left side).

[barn32]

I still can't fathom why the left side of your graphs all show your (T+expiration) line sloping sharply downward as price heads to 0.

John Lock's graphs do the same exact thing, and when I asked him about it he said it was perfectly normal. When you start adding lots of verticals it has that effect.

And don't forget. These are not butterfly's spreads with pre defined win/loss numbers. They are M3s, and as a result are constructed and maintained differently.

If I were to do straight butterfly trades, then yes, my max loss would be defined.

Another thing to keep in mind is that if the market were to slowly grind up and keep going up and up, the M3 is designed to break even.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ~~~~~~~~~~~~~~~

I put in a mid-point bid of $11.86 yesterday for my July M3 butterfly and instantly got filled at $11.70. Either the software hadn't caught up and the midpoint on my platform was wrong, or I made a mistake. Either way IB gave me the best possible price considering.

[I usually check the mid price first by looking at the individual leg prices and calculating it manually, but I was lazy yesterday and wanted to get filled fast so I didn't bother. Had I done that I would have realized the midpoint on my software was wrong and entered a different bid. It's a good way to double-check.]

RE closing out your June M3 today: What was your Theta when you closed the trade? If it was say, $150, then by not waiting until Monday morning you might have theoretically cost yourself ~$300. (Depending on what the market does of course.) $450 if you closed out out Monday at the bell.

Theta works in your favor over the weekend too.

[leekaufman]

Hey Barn32, thanks for such wonderful transparency around your trading!

If you're interested, I have a few thoughts based on what I see in your posts/data:

1) Where you say "weekly", I'm assuming that you're trading weekly options here (am I right)? If so, hardly anyone who trades the M3 professionally trades weeklies. There just isn't enough volume and the bid/ask spreads can be way too wide.

2) Many traders only adjusts their M3 trades in the last hour or so. So it's a trade that doesn't have you in front of your computer very often, and you're only having to adjust maybe 3-6 times per cycle - unless you trade toward expiration, and then you know you're at the mercy of Gamma and everything speeds up. I don't know of many ways you can make 25-40% per year, not actively sitting in front of your computer all day, while still having really good control over the downside.

3) With a trade like the M3, to trade it effectively your capital allocation has to be there from the get go. John Locke does 50K for a full-sized M3. I know traders who allocate around 30K because they know how to make more cost effective adjustments, and also because they're out of the trade by 14DTE. You should never be running out of margin, because your trading size should always be determined by your maximum possible margin.

4) Trading this thing near expiration takes a whole lot of knowledge and comfort with the trade, and unless someone's back-tested the heck out of it trading it to expiration, they're kind of rolling the dice, and will likely be in a load of trouble when volatility picks up unexpectedly.

5) At John's recent Advanced Position Management course (which I didn't attend), I heard that John talked extensively about back-testing every trade after it's done, to make sure you followed your plan, and to take away lessons that will help in the future when similar market events happen. That seems like really sage advice to me.

All that said, with the exception of your two big losses, and being in the somewhat early stages with this trade, it seems like you're doing a really good job.

Have a great weekend!

[barn32]

I put in a mid-point bid of $11.86 yesterday for my July M3 butterfly and instantly got filled at $11.70. Either the software hadn't caught up and the midpoint on my platform was wrong, or I made a mistake. Either way IB gave me the best possible price considering.

. I meant to say $10.70 not $11.70.

[barn32]

1) Where you say "weekly", I'm assuming that you're trading weekly options here (am I right)? If so, hardly anyone who trades the M3 professionally trades weeklies. There just isn't enough volume and the bid/ask spreads can be way too wide.

3) With a trade like the M3, to trade it effectively your capital allocation has to be there from the get go. John Locke does 50K for a full-sized M3. I know traders who allocate around 30K because they know how to make more cost effective adjustments, and also because they're out of the trade by 14DTE. You should never be running out of margin, because your trading size should always be determined by your maximum possible margin.

4) Trading this thing near expiration takes a whole lot of knowledge and comfort with the trade, and unless someone's back-tested the heck out of it trading it to expiration, they're kind of rolling the dice, and will likely be in a load of trouble when volatility picks up unexpectedly.
I have been trading weeklys and I haven't had much problem getting filled. Sometimes I have to pay up 10, 20 or 30 cents more but $20 or so more isn't all that much in in the overall scheme of things.

With all of the other trades I have going on I did run out of margin on a few occasions, and I had to liquidate another position in order to make the necessary adjustments for the M3. I have discovered that once you start adding verticals it can quickly add to your margin requirements. It's just something I'll have to watch more closely from now on or trade smaller size.

As far as trading close to expiration is concerned, I've yet to have one trade show any kind of decent profit halfway through the trade. Most of the large Theta decay kicks in closer to expiration.

I know that John Locke carries a lot of his trades close to expiration if not all the way through expiration. There's nothing wrong with doing that if you know how to manage the trade close to expiration. I'm not saying that I do know how to do that very well, but I'm learning as I go along. John Locke's M21 techniques go into that sort of thing in a lot more detail.

[PaceAdvantage]

John Lock's graphs do the same exact thing, and when I asked him about it he said it was perfectly normal. When you start adding lots of verticals it has that effect.

And don't forget. These are not butterfly's spreads with pre defined win/loss numbers. They are M3s, and as a result are constructed and maintained differently.

If I were to do straight butterfly trades, then yes, my max loss would be defined.

Another thing to keep in mind is that if the market were to slowly grind up and keep going up and up, the M3 is designed to break even.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ~~~~~~~~~~~~~~~

I put in a mid-point bid of $11.86 yesterday for my July M3 butterfly and instantly got filled at $11.70. Either the software hadn't caught up and the midpoint on my platform was wrong, or I made a mistake. Either way IB gave me the best possible price considering.

[I usually check the mid price first by looking at the individual leg prices and calculating it manually, but I was lazy yesterday and wanted to get filled fast so I didn't bother. Had I done that I would have realized the midpoint on my software was wrong and entered a different bid. It's a good way to double-check.]

RE closing out your June M3 today: What was your Theta when you closed the trade? If it was say, $150, then by not waiting until Monday morning you might have theoretically cost yourself ~$300. (Depending on what the market does of course.) $450 if you closed out out Monday at the bell.

Theta works in your favor over the weekend too.I don't get that. I am going by his original M3 rules. I haven't looked at any of his newer material.

My trades are ALWAYS pre-defined in terms of max/loss. Usually, with a 3-lot, my max loss is around 4000-4500 depending on how late I get into it. Each vertical I add tends to add about $700 or so of extra risk. So by the end of my last trade, I was looking at a theoretical max loss of about $6000, give or take a hundred here or there.

I've NEVER, in the year and a half I've been trading this, had a T+expiration line sloping sharply downward, on the left side of the graph...you've seen all the graphs I've posted here...I guess we're trading two different things.

Either that, or your graph is cut off before you show your T+expiration line leveling off to a straight line...

[PaceAdvantage]

Oh, and my theta by trade's end was somewhere around 60-70...somewhere in that general area...it wasn't three figures...

And correct me if I'm wrong, but I thought market makers work the weekend theta into the mix as the day wears on? So it's not like you have to wait until Monday to get the weekend theta...you get it through the day on Friday...or something like that...my terminology sucks and I'm probably not expressing myself very well, but I thought I read where the weekend theta is taken care of and accounted for before the end of the trading day on Friday....it's all eventually reflected in the price as Friday chugs along...

[PaceAdvantage]

And by the way, I LOVE this trade...I've shown a profit in 5 of 6 months thus far...and I have NOT been trading this thing anywhere near perfectly...I've made plenty of mistakes.

This meshes nicely with what happened to me last year, my first year trading this every month, although last year, while only trading one-lot, I seem to remember being able to close out close to half my trades at max profit...so far this year, I haven't been able to close any at max profit: $1,500.

[barn32]

And correct me if I'm wrong, but I thought market makers work the weekend theta into the mix as the day wears on? So it's not like you have to wait until Monday to get the weekend theta...you get it through the day on Friday...or something like that...my terminology sucks and I'm probably not expressing myself very well, but I thought I read where the weekend theta is taken care of and accounted for before the end of the trading day on Friday....it's all eventually reflected in the price as Friday chugs along...It looks like you are correct and I was wrong. Not sure where I came up with that.

Weekend Theta Decay (http://www.optionpit.com/option-education/how-option-time-premium-decays-over-the-weekend)

[PaceAdvantage]

Yup, I think that link you posted was the article I recall reading...

[badcompany]

A few questions:

1. What is the average time frame for these trades?

2. What type of odds are you getting?

3. What is the hit rate you are shooting for?

As an aside, Mike, any Saratoga plans, this year?

[barn32]

A few questions:

1. What is the average time frame for these trades?

2. What type of odds are you getting?

3. What is the hit rate you are shooting for?

As an aside, Mike, any Saratoga plans, this year?1. 14-60 days (depends on your time horizon. I've done 14 days to 59 days) 2. Even money (give or take.) 3. 100%. (Realistically, about 75-95%. I think John Locke had one losing trade last year.)

[PaceAdvantage]

A few questions:

1. What is the average time frame for these trades?

2. What type of odds are you getting?

3. What is the hit rate you are shooting for?

As an aside, Mike, any Saratoga plans, this year?My answers are a bit different...

1) 30 days
2) With a $1,500 profit target and a $1,500 max loss (trading 3 lots this year), it's theoretically even money, although your theoretical max loss could be about $5,000 if the shit hits the fan in a major way. But as you can see, I have yet to hit my profit target this year...and in fact, the odds I've gotten this year have been more like 1/5...lol...with an 83% hit rate. Which coincidentally or not, equals 1/5...
3) I would go with 75% give or take a few pct points
4) No plans for Saratoga as of yet...I hope to get up there, but I can't plan on it...hopefully by next year, I can start planning well in advance to get back up there...

[PaceAdvantage]

I entered my July M3 a little bit ago....boxscore:

Date Time Trade Description Fees Comm Amount
6/1/15 11:41:14 BOT +3 BUTTERFLY RUT 100 JUL 15 1270/1220/1170 PUT @10.75 CBOE -0.35 -18.99 -3,225.00
11:41:34 BOT +5 IWM 100 JUL 15 123 CALL @3.14 -0.15 -13.74 -1,570.00

Graph:

[badcompany]

I'm surprised by the high hit rate. I guess this trade doesn't come along too often.

[PaceAdvantage]

It comes along every single month... :lol:

It's a monthly trade. The rules are to open the trade 55-65 days out from every contract month. I break this rule and generally don't get in until about 40-50 days out from expiration.

[badcompany]

It comes along every single month... :lol:

It's a monthly trade. The rules are to open the trade 55-65 days out from every contract month. I break this rule and generally don't get in until about 40-50 days out from expiration.

I was thinking there were certain conditions that needed to exist for the trade to be a go.

[barn32]

I entered my July M3 a little bit ago....boxscore:

Date Time Trade Description Fees Comm Amount
6/1/15 11:41:14 BOT +3 BUTTERFLY RUT 100 JUL 15 1270/1220/1170 PUT @10.75 CBOE -0.35 -18.99 -3,225.00
11:41:34 BOT +5 IWM 100 JUL 15 123 CALL @3.14 -0.15 -13.74 -1,570.00

I don't know how you do that box score thingy, but you can see that our July M3s are almost identical. The only difference (other than commissions, and yours is a 3 lot and mine is 2) is the IWM call.

Mine is deeper in the money. I like to go out to about a 92 Delta. What was the Delta on your calls? OptionVue, close of today, says your 123 calls are 65 Delta.

http://oi57.tinypic.com/2n20mls.jpg

[PaceAdvantage]

I was thinking there were certain conditions that needed to exist for the trade to be a go.Nope...there are guidelines as to timing (a certain amount of days before expiration), and how far away from the current price you should buy your put butterfly...

You have a trade every single month, regardless of market conditions, where you think the market is heading...etc...etc...

[PaceAdvantage]

I don't know how you do that box score thingy, but you can see that our July M3s are almost identical. The only difference (other than commissions, and yours is a 3 lot and mine is 2) is the IWM call.

Mine is deeper in the money. I like to go out to about a 92 Delta. What was the Delta on your calls? OptionVue, close of today, says your 123 calls are 65 Delta.

http://oi57.tinypic.com/2n20mls.jpgAll I know is that I bought enough calls to get my delta to 0 (or as close to 0 as possible), while also getting my gamma as close to zero as possible, while also trying for the highest theta as possible. I know it all doesn't really matter that much (other than delta) when you open a trade, but that's how I like to choose my IWM calls...oh, and I also like to try and buy the cheapest calls allowable under the above parameters.

[barn32]

Seeing as how we basically have the same trade it will be interesting to see how they play out.

Here is what mine looks like.

And just for fun I added a second graph with a 2 lot 1210/1230 vertical put in the mix. Notice the difference on the left side of the two graphs.

Of course I wouldn't do that, but it's just an example showing how the left side steepens when you start adding verticals.

http://oi60.tinypic.com/qqzghd.jpg

http://oi57.tinypic.com/296mc7o.jpg

[barn32]

I'm posting a screenshot of John Locke's June M3 (as of June 1st) and one of My June M3, so you can compare. (Mine is the second one.)

http://oi58.tinypic.com/20jh7wj.jpg

http://oi62.tinypic.com/2qaoitt.jpg

[PaceAdvantage]

Something is still very different in what we are doing....

My max profit on these trades is almost always close to 2x what my max loss is (I am not talking about my personal profit target vs. stop loss, I'm talking about the trade's max profit and max loss).

For instance, in the trade I just opened (July), trading a three-lot, my max loss is $4795 and my max profit is $10,134.15.

Looking at your June graphs, your max loss is way larger than your max profit. The complete opposite of my trades...