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RUT M3 Trade Journal – April Entry

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46 replies, 10 voices Last updated by Cynthia Sarver 5 years, 3 months ago
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    • #4122

      Cynthia Sarver
      Participant
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      Excellent!  Makes a lot of sense now.  Thanks!

    • #4116

      Justin Ware
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      Actually, is a pretty simple rule. I’ll be in a conference for work the next 3 days so I won’t be unable to keep an eye on the trade. If it was early in the trade, I wouldn’t be too concerned, however we’re rapidly approaching expiration which makes me uncomfortable with holding while potentially not having access to make adjustments.

    • #4081

      Cynthia Sarver
      Participant
      @wawd@yahoo.com
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      Justin – what made you decide to exit the trade?  I haven’t put it in OV (and I agree with what Chris said above) but it seemed fine with last configuration you showed.  (Plus, you know I’m a HUGE fan of exit rules and am always looking for one that I’ve missed!)  Just curious…

    • #4079

      Justin Ware
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      I am seriously considering getting optionvue since the Greeks on One appear to be less accurate to the actual position.

    • #4078

      Chris Simpson
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      Justin, I suggest you take a look at optionvue software.  In my opinion it makes a difference since all these trades were designed and backtested with it.

       

      Chris.

    • #4055

      Justin Ware
      Participant
      @wareinjust@hotmail.com
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      I ended up getting out of the trade on Friday for around a 6% loss. I will be entering a May trade this week and will post this weekend sometime.

    • #3590

      Andrew John
      Participant
      @ajohnnd@gmail.com
      Points: 544
      Rank: Freshman

      As I’ve mentioned before, I don’t trade this, so I don’t have good intuition for how this position will react to up/down/flat days. My suspicion though is that you are probably not positive theta at this point. Based on other trades I do trade, I find that when I’m outside of the tent, the steepening of the T+0 line with the passage of time (going negative in this case) usually comes with the trade-off of theta decay negatively impacting your P&L. Now there’s usually an inflection point for this that gets lower and lower as more time passes, but given you are 10pts above the tent with 14 DTE, the position may drop in value tomorrow if the market stays put. Just my 2 cents.

      ——

      Interested to see how it plays out. Best of luck!

    • #3563

      Justin Ware
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      If the market sits, I don’t mind being positive delta in the current position as it won’t stay positive delta for long considering there aren’t many days to expiration.  If the market moves up, I plan to take off the trade and enter into my May trade.  If the market pulls back, I’ll look to adjust by rolling some short puts down.

    • #3561

      Andrew John
      Participant
      @ajohnnd@gmail.com
      Points: 544
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      How do you feel about being positive delta while also being outside the tent? I’m having a hard time seeing where the profits will come from given this current configuration.

    • #3560

      Justin Ware
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      @wareinjust@hotmail.com
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      My position went positive vega today so I rolled up some of my short puts.

      Current Position:

      Long 8 Puts at 1040

      Short 3 Puts at 1070

      Short 4 Puts at 1075

      Short 4 Puts at 1080

      Short 5 Puts at 1090

      Long 2 Puts at 1100

      Long 5 Puts at 1110

      Long 1 Puts at 1120
      Long 1 Call at 1045

    • #3500

      Justin Ware
      Participant
      @wareinjust@hotmail.com
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      I adjusted (again) today.  I was uncomfortable to the downside and thus did a reverse harvey to roll up my long 1030 puts to 1040.  At the end of the day, I rolled a short 1080 put to 1090 to get back to negative vega.

      Current Position:

      Long 8 Puts at 1040

      Short 3 Puts at 1070

      Short 4 Puts at 1075

      Short 8 Puts at 1080

      Short 1 Put at 1090

      Long 2 Puts at 1100

      Long 5 Puts at 1110

      Long 1 Puts at 1120
      Long 1 Call at 1045

       

    • #3463

      Justin Ware
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      That’s based off of ONE’s calculation, however a 28 point move is pretty impressive.

    • #3462

      D G
      Participant
      @thetaeater@gmail.com
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      I doubt if today’s move was 3SD up.

    • #3461

      Justin Ware
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      @wareinjust@hotmail.com
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      Almost a 3 SD move up – thanks Janet!  I actually adjusted at two different times today, once before Janet opened her mouth and once after.  The first adjustment rolled some of my long 1120 puts down to 1100 and the second rolled up some of my short puts.  My position overall isn’t faring too badly, imo at least.  I’m close to a roll point, however I will likely take off this trade and open a new one in May expiration if we get a continued up move.

      Current Position:

      Long 8 Puts at 1030

      Short 3 Puts at 1070

      Short 4 Puts at 1075

      Short 9 Puts at 1080

      Long 2 Puts at 1100

      Long 5 Puts at 1110

      Long 1 Puts at 1120
      Long 1 Call at 1045

    • #3421

      Justin Ware
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      @wareinjust@hotmail.com
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      Thank you everyone for the input regarding the long calls.  I adjusted today, but still have “swoop” from vega and gamma to the upside that needs to be fixed tomorrow.  My plan is to roll some of my long puts at 1120 to 1110 to fix this issue.  Any thoughts, comments, insights are greatly appreciated!

      Current Position:

      Long 8 Puts at 1030

      Short 2 Puts at 1060
      Short 9 Puts at 1070

      Short 5 Puts at 1080

      Long 5 Puts at 1110

      Long 3 Puts at 1120
      Long 1 Call at 1045

    • #3240

      Chris Simpson
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      Yes Cindy is correct.  You need to drop maybe 2 flies to compensate from going from 110 deltas to 90 on the call.  This is a common adjustment when your butterflies have to much value relative to the call.   This will make your t+0 nice and flat.

    • #3230

      Cynthia Sarver
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      The problem is with the ratio of butterflies to long calls.  You’ll need to remove some butters if you’re going to drop to a single long call, regardless of whether it’s DITM.

    • #3227

      Jason Li
      Participant
      @jiashengli@gmail.com
      Points: 351
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      Hi Chris, if you have TOS, would you mind adding it to the comparison pool. Thanks

    • #3220

      Chris Simpson
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      Yes prob one.  I have both one and optionvue, I will see if I can model it and see where the differenced lies.

    • #3193

      Chris Simpson
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      In the above example your 2 1075 .55 delta calls are priced at $19.70.   $15.39 of that is time premium.  If the butterfly just stays in place, you will lose 3000 dollars in t premium on those calls.   A .90 delta call on the other hand is priced at $66.75 with only 2.36 of t prem.  And you only need 1 of them instead of 2.  If butterfly stays put it will lose $236 in t prem.  Its a big difference!

      • #3207

        Justin Ware
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        @wareinjust@hotmail.com
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        Hey Chris,

        I modeled your suggestion in ONE.  The adjustment of removing my current calls and adding a higher delta gives an ugly T+0 to the upside, however it does increase theta.  Is this possibly an issue with ONE modeling?  Thoughts?

        Thanks for your input!

         

    • #3184

      Chris Simpson
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      The problem is that is has too much time premium.   A deeper in the money call holds its value better because its time premium is so low.  The time decay from your .55 delta calls is putting an drag on the trade and will cause you to sag much faster.

    • #3179

      D G
      Participant
      @thetaeater@gmail.com
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      +1 to Andrew’s comment above.

    • #3177

      Andrew John
      Participant
      @ajohnnd@gmail.com
      Points: 544
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      Justin,

      I do not trade the M3 myself, so I have not done the backtests to validate this; but from my knowledge of the trade and the monthly returns that I have seen historically from the blog trades, I would carefully consider Cindy’s comment about the placement of your long call.

      I would think the negative theta of the call as you currently have it placed would be a significant headwind to the trade consistently reaching your profit target. My understanding of the trade design is that the Butterfly contributes the primary source of return (the theta) and that the Call is strategically placed to flatten your deltas while also having minimal impact on your theta. If you place the call too high, the negative theta may weigh down the trade.

    • #3163

      Justin Ware
      Participant
      @wareinjust@hotmail.com
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      I did an adjustment to make my T+0 on the upside a bit more palatable.  Gamma is starting to creep up so I’m keeping an eye on the upside to make sure I don’t get hurt by both gamma and vega on an up move next week.

      Current Position:

      Long 8 Puts at 1030

      Short 2 Puts at 1060
      Short 12 Puts at 1070

      Short 2 Puts at 1080

      Long 4 Puts at 1110

      Long 4 Puts at 1120
      Long 2 Calls: 1075

       

    • #3046

      Cynthia Sarver
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      Justin – indeed, that works!  You can now see the sag I was talking about; it’s quite different than ONE’s version.  Of course after today’s movement, who cares?

    • #3025

      Cynthia Sarver
      Participant
      @wawd@yahoo.com
      Points: 911
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      Justin – I put your trade in OV as of Tuesday’s close.  You’ll see that the sag is the T+0 is significantly different in ONE than in OV.  Also, are your long calls really at 1075?  They’re only about a 70 delta which will also cause T+0 problems on the upside (as opposed to a 90 delta set of calls).

      Of course, today you’re probably happy with it!

       

      (Looks like I still can’t insert an image for some reason.  If you want me to email you the OV model, just let me know.)

      • #3044

        Justin Ware
        Participant
        @wareinjust@hotmail.com
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        Hey Cindy,

        The Insert Image button that worked for me is at the end of the row of buttons that starts with the bold icon (B).  That’s the only way I’m able to upload images.

        Thanks for your help!

        Justin

    • #3016

      Justin Ware
      Participant
      @wareinjust@hotmail.com
      Points: 1 014
      30 Day Affirmation ChallengeThe Trading Triangle Maui 2016APM2
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      Thank you, Cindy!  I adjusted today to lift up the sag of my T+0 line on the upside.

      Current Position:

      Long 5 Puts at 1020

      Long 3 Puts at 1030
      Short 14 Puts at 1070

      Short 2 Puts at 1080

      Long 8 Puts at 1120
      Long 2 Calls: 1075

    • #2976

      John Locke
      Keymaster
      @john-locke
      Going to The Trading Triangle LIVE 2016Locke In Your Success CoachAPM2Trade JournalsUltimate Income Trader Workshop

      Justin,

      As Cindy stated, ONE often under estimates losses on upside and over states losses on down side. Add that too your slight bearish bias and taking on the brunt of a near record rally, then the draw down makes sense.

    • #2975

      Cynthia Sarver
      Participant
      @wawd@yahoo.com
      Points: 911
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      Justin – if I recall correctly, you’re also using ONE instead of OV.  I’ve found that ONE *under* represents the upside risk and *over* represents the downside risk.  You may have had different results had you been using OV since you thought you had a flatter T+0 than you really did, and you probably didn’t have nearly as much downside risk as you thought, as well.

    • #2964

      Jason Li
      Participant
      @jiashengli@gmail.com
      Points: 351
      Rank: Freshman

      Justin, sorry to hear that. Is the max loss 10% or 5% of the planned capital?

    • #2962

      John Locke
      Keymaster
      @john-locke
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      Justin,

      An April M3 should not be near max loss. The trade should be near break even, possibly down 3-5%. Were you letting it go too long before adjusting?

      John

      • #2965

        Justin Ware
        Participant
        @wareinjust@hotmail.com
        Points: 1 014
        30 Day Affirmation ChallengeThe Trading Triangle Maui 2016APM2
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        I’m down about 8% of planned capital.  When I looked back through my trades so far, I’ve gotten hurt from the frequent large up moves in combination with a sagging T+0 line on the upside.  Had I flattened out my T+0 more frequently, I wouldn’t be down much.  I was reluctant to do this because I didn’t want to raise my break even on the downside for fear of any pullback that lasted longer than a day.  My thinking was, “how many large up moves can we have in a two week period?”  That thinking has clearly hurt me in this trade.  I’ve counted 6 days with greater than one standard deviation moves (4 up, 2 down) since March 7th, which is pretty impressive imo.  As such, I haven’t had much opportunity for theta decay to help offset my losses due to vega.

    • #2956

      Justin Ware
      Participant
      @wareinjust@hotmail.com
      Points: 1 014
      30 Day Affirmation ChallengeThe Trading Triangle Maui 2016APM2
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      I rolled my entire position today and am close to max loss on this trade.

      Current Position:

      Long 8 Puts at 1020
      Short 16 puts at 1070

      Long 8 Puts at 1120
      Long 2 Calls: 1075

    • #2929

      Justin Ware
      Participant
      @wareinjust@hotmail.com
      Points: 1 014
      30 Day Affirmation ChallengeThe Trading Triangle Maui 2016APM2
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      With the move up, I rolled up some short puts to fix my negative vega.  Depending on market movement tomorrow, I will possibly roll up (and reduce size) the entire position.  I’m getting close to max loss so I don’t have too many more adjustments before I simply get out of the position and look to enter next month’s position.  I still haven’t figured out how to post attachments, hopefully someone can help!

      <hr />

       

      Current Position:

      Long 10 Puts at 980
      Short 14 puts at 1030

      Short 6 puts at 1040
      Long 3 Puts at 1060
      Long 7 Puts at 1080
      Long Call: 1000

       

    • #2861

      Justin Ware
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      @wareinjust@hotmail.com
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      I meant to post this already, but didn’t get around to it over the weekend.  I did a small adjustment to bring my vega back to negative this past Friday, March 11th.  I’m not sure how to upload pictures with the new forum update.  If anyone has figured it out, please let me know!

      <!–nextpage–>

      Current Position:

      Long 10 Puts at 980
      Short 5 put at 1020
      Short 15 puts at 1030
      Long 3 Puts at 1060
      Long 7 Puts at 1080
      Long Call: 1000

    • #2738

      Justin Ware
      Participant
      @wareinjust@hotmail.com
      Points: 1 014
      30 Day Affirmation ChallengeThe Trading Triangle Maui 2016APM2
      Rank: Sophomore

      I didn’t like my T+0 line to the downside so I did a slight adjustment today.

      Current Position:
      Long 10 Puts at 980
      Short 6 put at 1020
      Short 14 puts at 1030
      Long 3 Puts at 1060
      Long 7 Puts at 1080
      Long Call: 1000

    • #2722

      Anonymous One
      Participant
      @anonymous@lockeinyoursuccess.com
      Points: 2
      Rank: Newbie

      While M3 is designed to minimize drawdowns in most scenarios, drawdowns usually result during sudden volatility transitions. If it ever suffered major drawdowns (more than 5%), it’s been my experience that it’s better to reduce profit target, not increase. If it’s less than 21 DTE, I might even exit the trade even at breakeven. Average M3 gain is around 7%.

    • #2717

      Justin Ware
      Participant
      @wareinjust@hotmail.com
      Points: 1 014
      30 Day Affirmation ChallengeThe Trading Triangle Maui 2016APM2
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      I adjusted again today (at 3:30 pm) in order to get the position back to negative vega. As you’ll notice from my current position greeks, the position ended up long vega despite being negative vega at the time of adjustment. I haven’t rolled up the entire position because I’m hesitant to do so considering the quick up move we’ve had recently. We’ll see what tomorrow brings.

      Current Position:
      Long 10 Puts at 980
      Short 1 put at 1020
      Short 19 puts at 1030
      Long 3 Puts at 1060
      Long 7 Puts at 1080
      Long Call: 1000

    • #2681

      Justin Ware
      Participant
      @wareinjust@hotmail.com
      Points: 1 014
      30 Day Affirmation ChallengeThe Trading Triangle Maui 2016APM2
      Rank: Sophomore

      With the move up today in the market, I rolled some of my options to fix my vega. I didn’t move the entire position as I’m hesitant to do so with the one sided move up we’ve had recently, however my position is slightly positive delta so I’m fine if the market continues up.

    • #2659

      Justin Ware
      Participant
      @wareinjust@hotmail.com
      Points: 1 014
      30 Day Affirmation ChallengeThe Trading Triangle Maui 2016APM2
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      Thanks for everyone’s input. Since my current trade is underwater and my max loss will be unchanged, I am contemplating moving up my profit goal for this trade and future trades to 10%. As for my current position, I rolled up some of my short puts to flatten out my delta and reduce positive vega. I am still slightly positive vega and, depending on tomorrow’s movement, plan to roll up all or part my position. My current position is:

      Long 10 Puts: 960 and 1060
      Short 16 puts: 1010
      Short 4 puts: 1020
      Long Call: 1000

    • #2534

      Rick Wize
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      Justin,

      I understand your response. But typically you want to be careful of having a plan that the maximum loss is 2x the target profit. Mathematically if you had 100 trades and won 66% (2/3rds) you would lose money. (66 x 5000 = 330,000) & (34 x 10000 = 340,000). This is assuming you make 5000 profit target on every winning trade (which is not likely).

      I know the M3 should do better than 66% but, I still would be concerned with the potential outcome.

      Rick

    • #2524

      Justin Ware
      Participant
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      The 10% loss is actually based off of the backtesting I did. I found that there were many times I’d draw down 7-8% and then the market would calm down enough for me to either get out at breakeven or make a small profit. Had my max loss been set lower, I would’ve been stopped out of these trades and ultimately had a much less favorable overall return. One of the beauties (in my opinion) of the M3 is that it takes a lot of market volatility to get down 10% on a trade if you are managing according to John’s guidelines. Hope that makes sense.

    • #2521

      Raymond Joseph
      Participant
      @rjosephlaw@gmail.com
      Points: 1 126
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      Justin, I agree with Rick, why are you using a 2 to 1, risk to reward ratio? To me that is setting you up to take on losses that are twice as big as your gains, which makes the trading system skewed against you.

      One of my toughest tasks, in a trade is learning to let the trade “breathe”, which basically translates into allowing for inevitable draw downs (paper losses). We have all learned from childhood that losses are bad and gains are good. It’s hard to understand that in trading the market neutral strategies, you will have periods of possible paper losses, which are acceptable and in fact inevitable if you want to achieve maximum profit potential. Actually, I think I am scheduled to do an enriching session on Dealing with Fear, when trading. I think towards the end of March.

      Hope this helps.

      Raymond

    • #2472

      Rick Wize
      Participant
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      Justin, I’m new on the forum, but why would you have your max loss be 2x your profit target? I’m used to at a minimum to be 1 to 1.

    • #2468

      Justin Ware
      Participant
      @wareinjust@hotmail.com
      Points: 1 014
      30 Day Affirmation ChallengeThe Trading Triangle Maui 2016APM2
      Rank: Sophomore

      I entered into a new M3 for April expiration on Friday, 02/26/16. My planned capital is $30k, profit target is 5% of planned capital and max loss is 10% of planned capital.

      DTE: 49
      Butterflies: 960/1010/1060
      Long Call: 1000

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