The M3 Options Trading System

[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.

[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...

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]

Originally Posted by PaceAdvantage

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.



My new position:

[barn32]

This is an uncluttered view of my current position.

[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]

Originally Posted by 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.

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]

Originally Posted by 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.

No problem. This is a giant learning curve for me. However, I have to disagree about my graphs. I'll explain later.

Originally Posted by PaceAdvantage

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



POSITION AFTER ADJUSTING WITH VERTICALS

[barn32]

Originally Posted by PaceAdvantage

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.]

[PaceAdvantage]

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

[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.

[barn32]

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