The M3 Options Trading System

[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...

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]

Originally Posted by PaceAdvantage

It comes along every single month...

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]

Originally Posted by 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

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.

[PaceAdvantage]

Originally Posted by badcompany

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]

Originally Posted by barn32

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.

All 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.

[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.)

[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...

[barn32]

Originally Posted by PaceAdvantage

Looking at your June graphs, your max loss is way larger than your max profit. The complete opposite of my trades...

What about your June Trade? How many verticals did you buy? So far, my June M3 has 11 Rut 1210/1230 verticals, and four of those I bought today.

[PaceAdvantage]

I'm only 16 points away from having to roll up...and I've only been holding this thing two days...

The nature of this trade (at least how I do it), basically implores you to give PLENTY of downside room to the trade, because you are hedged somewhat to the upside because of the IWM calls you tack on after buying the butterfly...

That's why I like this trade so much (well, one reason). I can be dead wrong in my initial position, but not be hurt too badly if for some reason the market SCREAMS up right after I buy in....I just move the goalposts, swallow a relatively small loss, and start again.

[PaceAdvantage]

Originally Posted by barn32

What about your June Trade? How many verticals did you buy? So far, my June M3 has 11 Rut 1210/1230 verticals, and four of those I bought today.

I post everything on here...you can see for yourself what I bought...I think I bought 2 if I remember.

[barn32]

Originally Posted by PaceAdvantage

Something is still very different in what we are doing....

I think the main difference in what we are doing is that I am hedging whenever (within reason) it is appropriate to do so, and you on the other hand are trading directionally, forgoing hedges, hedging and then getting out of the hedge, etc.

This is my observation anyway. I could be way off.

For example on many occasions you have said my Delta is too high, but I'm just going to wait and see if the market comes back to me. That's fine, but I just hedge and get it over with.

[PaceAdvantage]

Originally Posted by barn32

I think the main difference in what we are doing is that I am hedging whenever (within reason) it is appropriate to do so, and you on the other hand are trading directionally, forgoing hedges, hedging and then getting out of the hedge, etc.

This is my observation anyway. I could be way off.

I've made a few mistakes, but I hedge with verticals when my delta starts to get beyond 10.

Yes, I sold off a few calls when I shouldn't have in my June trade.

But even still, at a 3-lot, buying one or two RUT verticals like I did in June only set me back $1,300 in risk...the MAX PROFIT of the trade still FAR OUTWEIGHED the MAX LOSS.

Looking at your June chart, this is SO NOT the case...

What is the situation when you buy verticals? Only when your delta gets past 10 like in the original rules? Do you buy verticals instead of rolling when you're 10 points beyond your upper strike or 20 points below your short strike?

Like I said, we're doing things very differently if your max profit/loss is completely opposite of mine.