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RUT M3 Trade Journal – May Entry

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35 replies, 10 voices Last updated by Wayne Klump 5 years, 2 months ago
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    • #8379

      Wayne Klump
      Participant
      @wacky.wayner@gmail.com
      Points: 860
      Going to The Trading Triangle LIVE 201630 Day Affirmation ChallengeUltimate Income Trader Workshop
      Rank: Freshman

      Good job Justin. Looks like you followed your trade plan very well and exited at a opportune time. Thank you for putting up some screen shots of ONE throughout the trade I have found it very useful. I will admit it takes guts to put your trade out here for others to look at and critique, I commend you.

    • #8378

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

      I closed this trade out on Friday, May 8th for a 3.8% profit.  I’ll be starting a new trade when July expiration is closer to 56 days.

    • #8261

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

      I did some adjustments today to reduce my delta and tighten the noose.  I will be traveling next week so I will look to close this position tomorrow depending on market movement and theta.

      Current Position:

      Short Puts (18):  1100

      Long Puts (1140):  4

      Long Puts (1150):  5

      Long Puts (1070):  9
      Long Calls (2): 1060

    • #8245

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

      I adjusted today to lower my position delta and give myself a little more room to the downside.  If we get a bounce tomorrow, I will look to roll in my upper long puts to fix the T+0 sag on the upside.

      Current Position:

      Short Puts (12):  1100

      Short Puts (6):  1110

      Long Puts (1160):  4

      Long Puts (1150):  5

      Long Puts (1060):  5

      Long Puts (1070):  4
      Long Calls (2): 1060

    • #8158

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

      I cleaned up my position today in order to fix my sagging T+0 line on the upside and to give myself some more room on the downside.  Thank you to Scott for pointing out the effect on gamma that the short call was having.

      Current Position:

      Short Puts (4):  1100

      Short Puts (14):  1110

      Long Puts (1160):  6

      Long Puts (1150):  3

      Long Puts (1060):  5

      Long Puts (1070):  4
      Long Calls (2): 1060

    • #8147

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

      Scott – I agree, selling the call has hurt the trade significantly during this continued rally.  I will definitely change my initial trade setup in the future, thanks for your help and modeling thus far.

      I did do an adjustment yesterday, rolling some of my long and short puts.  Current position below.  With Facebook having positive earnings, I’m expecting to have to adjust tomorrow b/c of an up move, however we shall see what RUT does.

      Current Position:

      Short Puts (2 each):  1120, 1125

      Short Puts (14):  1110

      Long Puts (1160):  6

      Long Puts (1150):  3

      Long Puts (1060):  5

      Long Puts (1070):  4
      Long Calls (2): 1060

      Short Call (1):  1140

       

       

    • #8134

      Chris Simpson
      Participant
      @fastchris@comcast.net
      Points: 2 404
      APM230 Day Affirmation ChallengeTrade Journals
      Rank: Junior

      Is there a way to enlarge these diagrams , so actual numbers can be seen?

      • #8135

        Scott Slivnik
        Participant
        @sslivnik@gmail.com
        Points: 178
        Rank: Newbie

        Chris,

        I have the same problem.  Right-click an image and your browser should give you the option to open/view the image in a new tab.  The image in the new tab will be much larger.

    • #8132

      Scott Slivnik
      Participant
      @sslivnik@gmail.com
      Points: 178
      Rank: Newbie

      Justin,

      I went back to April 8th and modeled your starting trade and then modeled what I likely would have opened.

    • #8131

      Scott Slivnik
      Participant
      @sslivnik@gmail.com
      Points: 178
      Rank: Newbie

      Justin,

      I noticed that your trade has a good amount of negative gamma even though RUT is very close to your upper breakeven.  M3 Butterflies usually have positive gamma when RUT/SPX reaches the upper portion of the butterfly or is outside of the butterfly on the upside.

       

      The 1140 call you sold heavily affected the gamma of the trade and hurt the trade significantly during the rally.  I am assuming you sold the call because buying 3 calls resulted in too many positive deltas for the number of butterflies you bought.  I recommend buying fewer butterflies rather than selling a call.  I usually end up with 5-7 butterflies for each long call when trading SPX so the number of butterflies fluctuates.

    • #8124

      Scott Slivnik
      Participant
      @sslivnik@gmail.com
      Points: 178
      Rank: Newbie

      Thank you for the correction Justin.  Attached is both correct trade from Friday and how it looks today in OV.

    • #8123

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

      <p style=”text-align: center;”>Hey Scott, my position is a little different than what you modeled. I am long 6 of the 1160 puts and long 3 of the 1150 puts.</p>

    • #8120

      RAY MacHardy
      Participant
      @RMacHardy@comcast.net
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      Thank you for posting that Scott as I was not able to follow the current inventory of the campaign.

    • #8118

      Scott Slivnik
      Participant
      @sslivnik@gmail.com
      Points: 178
      Rank: Newbie

      Justin,

      I modeled what I believe is your current trade into OV.  If any of the strikes or quantities are incorrect, let me know.

    • #8117

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

      I did an adjustment Friday to reduce my upside swoop and reduce my capital in the trade.

    • #7690

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

      I rolled up my long calls to reduce my capital in the trade and rolled a couple of short puts to reduce the swoop I have to the upside of my position.  Position looks like this:

      • #7692

        Scott Slivnik
        Participant
        @sslivnik@gmail.com
        Points: 178
        Rank: Newbie

        Justin,

        I recommend looking into rolling up the lower long puts (currently 1060 in your trade) rather than rolling your long calls up.   You are making your swoop worse by rolling up your calls closer to ATM.  I RARELY move the long call.

         

        I often roll up short puts and roll up the lower puts in a single order.  A condor spread.

    • #7454

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

      Scott – Thank you for all of your input so far.  You are spot on about my slow adjustment to the upside, which has (and continues) to put the hurting on my trades.  I aim to fix this in the future.

      With that being said, I rolled up my entire position today.  I’m over my planned capital and will roll up my long calls to get my capital under control with minimal impact on my greeks.

      Current Position:

      Butterflies (9): 1060/1100/1160
      Long Calls (2): 1030

      Short Call (1):  1140

    • #7091

      Scott Slivnik
      Participant
      @sslivnik@gmail.com
      Points: 178
      Rank: Newbie

      Saleh,

      The short answer is no.  I always roll close to half or I roll them all.

       

      Once in a while we will enter a very fast bull market.  Usually right after a large market decline.  In that environment, I may not roll half of the butterflies.  As long as the speed of the rally is insane, I will likely just keep delta under control and hang on for the ride.  When the pace slows down, the theta will likely be near zero.  I will then roll all of the butterflies up rather than half.

       

      If rolling roughly half (40-60%) of the butterflies cuts the deltas too much, I do one of the following:

      1.  Choose a lower strike.
      2.   Open butterflies with a lower wing width.  For example, close 3 100-wide butterflies and open 3 75-wide butterflies.  Also, consider that 100-wide may make sense at 50 DTE but not at 30 DTE.
      3.   Open fewer butterflies than the quantity closed.  For example, I may close 3 butterflies and then open 2 butterflies.  The main reason I would reduce the number of butterflies is the adjusted margin is too high.
    • #6971

      Saleh Tabandeh
      Participant
      @saleh.tabandeh@gmail.com
      Points: 146
      Rank: Newbie

      Hi Scott,

      very interesting that you are using SPX. Can you give us a little more info about your setup. What are wing sizes you use, always 100? Do you usually go for 5 to 1 butterfly/call ratio?

      Also, you mentioned rolling up only half of the butterflies each time. Under what condition do you roll the remaining butterflies up and do you roll them over the new ones or higher than them?

      • #7067

        Scott Slivnik
        Participant
        @sslivnik@gmail.com
        Points: 178
        Rank: Newbie

        The ratio of butterflies is determined by the desired starting delta and margin.  For the trade I posted, 5 butterflies plus 1 80+ delta call resulted in a -3 starting delta.  A wing width of 100 is my preferred width, however, when the number of butterflies per call reaches 4 with a wing width of 100, I reduce the wing width to 75 (usually the VIX is under 15).

        I roll the remaining butterflies up when one of the following occurs:

        1.  The trade is positive vega again on the upside.
        2.   When the negative delta needs to be reduced and the lower butterflies are either either negative theta or barely positive theta.

        When I roll the lower butterflies up, the strike selected is determined by what my target delta is.  The lower butterflies may be rolled up to the same strike as the other butterflies or even higher.

        As long as the vega is negative or even slightly positive and the lower butterflies are positive theta, I do other adjustments, such as verticals and condors when a negative delta adjustment is needed.

         

      • #7090

        Saleh Tabandeh
        Participant
        @saleh.tabandeh@gmail.com
        Points: 146
        Rank: Newbie

        Thanks for the great explanation Scott, very interesting. Have you seen any problems during finer adjustment because of the smaller ratio of the butterflies to delta calls? For example, you want to adjust your delta but realizing that even one spread is too much of a delta correction?

    • #6561

      Scott Slivnik
      Participant
      @sslivnik@gmail.com
      Points: 178
      Rank: Newbie

      Justin,

      Hopefully things turn around for you soon.   I have been following you and noticed the following:

      1.  I am much more aggressive rolling butterflies up.  Unless the trade has a healthy profit, I almost always roll butterflies up when the vega enters solid positive territory.  If I am bearish, I make sure the adjusted trade has a good amount of negative delta. Usually half of the butterflies are rolled up at a time.
      2. You use relatively low delta long calls to hedge the butterflies.  I do not consider calls under 80 delta to minimize the time premium.
      3. OV rather than ONE.  ONE is working on their modeling but today, using OV will improve your results when trading M3 butterflies.

      Attached is a screenshot of one of the butterflies I adjusted today by rolling 2 of 5 butterflies from 1975 to 2050.  I trade SPX rather than RUT simply because I am used to SPX  The vega was +150 prior to adjustment and the delta was +1.  I first looked at rolling to 2025 but was not quite happy with the greeks.  The green graph is the adjusted trade.

    • #6519

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

      I had swoop to the upside going into today, which naturally caused the RUT to have a large up day.  I rolled some of my shorts to get my vega back negative and will look to roll the entire position if the market continues up tomorrow.

    • #5923

      Cynthia Sarver
      Participant
      @wawd@yahoo.com
      Points: 911
      Blog WriterGoing to The Trading Triangle LIVE 2016APM2 LIVE AttendeeSuccessful Options Trader of the Month30 Day Affirmation ChallengeTrade Journals
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      Hi Michael – agreed!  That’s why I used the word “prefer” for my 10:1 ratio.  There always cases (as you said) where that’s what you get.  It was mostly in conjunction with a 70’ish delta call that I wouldn’t care for the lower ratio.  A DITM one, as you had modeled, would be a good alternative.

    • #5864

      Michael Durojaye
      Participant
      @mdurojaye@gmail.com
      Points: 598
      Rank: Freshman

      Hi Cindy,

      I generally would have opted for the next month out, which is actually what I did for my trade, but I have also used smaller flys as setups for my M3 if traded less than 50 days to expiry, where the price of the fly is getting quite high (low vols) & I don’t wan’t to commit $50K to the trade.

    • #5703

      Cynthia Sarver
      Participant
      @wawd@yahoo.com
      Points: 911
      Blog WriterGoing to The Trading Triangle LIVE 2016APM2 LIVE AttendeeSuccessful Options Trader of the Month30 Day Affirmation ChallengeTrade Journals
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      I prefer not to have less than a 10:1 ratio with a DITM call and with a 70 delta call, I would want a lot more than 10 BF’s to offset the time premium that I’m paying for the call.  (I’m talking generically about entry points here; there are times when I’d keep a 70 delta call and be happy with it mid-trade.) The M3 was designed with a (generally) 10:1 ratio with a long call having (generally) about $1 of time premium.  If you pay $8 of time premium for your call, that’s the equivalent time premium drag of 8 long calls on the position.  Unlike the BB and the ROCK, the M3 doesn’t make money particularly quickly so any additional drain on the profit-making potential can affect the position significantly.  (That’s also ignoring the vega issue as you get outside the tent, as Michael correctly pointed out above.) Rather than dropping below 10 BF’s, I’d probably be looking at the next month out.

      .

      The butterflies have positive theta, the long calls negative, so as a theta trader I’m very interested in the ratio between the two and want it as large as possible!

    • #5702

      Paul Booth
      Participant
      @paul@paulbooth.net
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      Thank you, Dustin. I’m still picking up the lingo.

    • #5697

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

      He was referring to time premium.  Not sure how far along you are in your journey, but time premium is the component of an option price that is affected by vega & volatility which can cause drag on the upside of the M3.

    • #5686

      Paul Booth
      Participant
      @paul@paulbooth.net
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      Michael, you wrote “Why the 1030 Calls, the TP is about $8 which may…”

      What is TP?

      Thank you

      I’m a newbie here.

    • #5539

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

      Michael, thanks for your input, it’s caused me to think about initial trade setup more in-depth.  When the cost of one butterfly was roughly $12 during my backtesting, 10 butterflies was the number I’d usually put on.  After thinking about your points and comparing the two positions, I really only see 3 differences.  The first, as you pointed out, is that your proposed position has less sag to the upside.  The second, as you also pointed out, is the slightly larger margin for the position.  The third is an increased max profit potential (roughly 15%) between 10 vs. 9 flies.  However, the difference in max profit would likely be erased should I need to adjust to the upside.  Overall, I like your position better and will keep that in mind for future months.

    • #5518

      Michael Durojaye
      Participant
      @mdurojaye@gmail.com
      Points: 598
      Rank: Freshman

      Hi Justin,

      Thanks for posting your trade. I’m no expert on the M3, but just a few observations:

      Why the 1030 Calls, the TP is about $8 which may give the trade a lot of drag,hence, the slightly downward  sloping T+1 line outside the tent, you will have to keep an eye on this if the mkt has one of those big up days.

      Is there a reason why you wanted to use 10flys, given the high price of the flys (low vol enviroment) & your planned capital of of $30k, you could have achieved a similar structure with maybe 9flys…just a thought…you may have a valid reason for wanting to start with 10flys.

      Here’s screenshot of what I mean in OV.

      Similar greeks, slightly more capital but marginal.

       

       

       

       

       

    • #5506

      Justin Ware
      Participant
      @wareinjust@hotmail.com
      Points: 1 014
      30 Day Affirmation ChallengeThe Trading Triangle Maui 2016APM2
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      Thanks for the image info.  Below is a screenshot of my position.

    • #5493

      Sherri Locke
      Keymaster
      @KDAKSj4ux
      Going to The Trading Triangle LIVE 2016Ultimate Income Trader Workshop

      @justin-ware The upload picture function seems to be working. Let me go through the steps:

       

      1. Click the picture button highlighted on the editing toolbar.

       

       

      2. This will bring up a dialog box like below. Next either type in a URL in the top box or click “Choose File” button to select an image file which has been saved on one of your local drives.

       

      3. Once you have either the URL or an image file selected click the “Insert Image” button. Please note: the image cannot be larger than 2MB using this function. If you have an image that is larger, either resize the image below 2 MB or send it to sherri@lockeinyoursuccess.com and I will post it for you.

    • #5442

      Justin Ware
      Participant
      @wareinjust@hotmail.com
      Points: 1 014
      30 Day Affirmation ChallengeThe Trading Triangle Maui 2016APM2
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      It looks like the image upload capability is not working.  Did something get changed?

    • #5441

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

      I entered my May M3 position this afternoon with RUT at $1095.  Profit goal and max loss are 10% on planned capital of $30k.

      Current Position:

      DTE: 42
      Butterflies (10): 1020/1070/1120
      Long Calls (2): 1030

      Short Call (1):  1060

       

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