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T+0 line vs Greeks

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8 replies, 7 voices Last updated by John Locke 4 years, 7 months ago
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    • #10166

      Rohit Kamath
      Participant
      @hrohitkamath@gmail.com
      Points: 680
      Rank: Freshman

      I am very early on the M3 material and I had a similar question on the static and dynamic greeks. In John’s presentation (1st video), he mentions that the dynamic greek trends do not have a specific number and will eventually “get a feel for” through experience. My question : is this something that you would know/eventually identify based on the T+0 line?  Can we segregate the trends from just the T+0 line?

      Example, based on the T+0 line , static greeks and the price, could the delta trend be identified separately from the vega trend, or with other trends?

      Thank you

       

       

      • #10172

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

        Rohit,

        When you have a complex options position the analyze graph gives you the composite Greeks for the position at the given price level. This is an extremely limited amount of information to work from for multiple reasons.

        The reality is that each option in the position has its own volatility and that volatility is determined by the price of the option and the price of the option is driven by supply and demand on that specific option which is determined by a combination of actual asset price movement, expected asset price movement, news and expected news and time till expiration, with the only predictable factor being time till expiration. This makes the values of those options very unpredictable which in turn means the T+0 line projections on your analyze graph are nothing more than a best guess based on an extremely small amount of information.

        Considering this the software does a decent job 80% of the time.

        One of the things to remember is that the Greeks at your current price point don’t matter a whole lot if the price of the asset is going to be someplace else. So what we need to think about as a traders is what are the Greeks where I am concerned about the price moving to………………… and if it moves there, at a specific time, in a specific amount of time…. how is that likely to change volatility and how is the volatility combined with other factors such as DTE and second order Greeks (Vomma Vanna and charm which the software doesn’t even tell us)  going to effect the t+0 line and thus my p/l should the price move there.

         

        And yes this takes some experience to get a feel for but in order to ever get a feel for it you need to bring those factors into your awareness and pay attention to them.

      • #10176

        Rohit Kamath
        Participant
        @hrohitkamath@gmail.com
        Points: 680
        Rank: Freshman

        John,

        Thanks for your prompt response. I started my subscription in OV (Version 8.11) today with TOS feed. The first thing I tried to do was to try to mimic the first “Entry Position” from the M3 training slides (Part #1 , Slide #33) . I noticed that the static greeks , (individual and combined) ,from the slides were different from what I got.

        • Could this mean that the greeks could differ between the OV versions?
        • Should I change certain parameters in the “Model” settings?
          Thank you.
      • #10177

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

        Rohit,

         

        For settings, if you are a premium member, check the Option Vue Tips and Tricks document in the resources section. https://members.lockeinyoursuccess.com/wp-content/uploads/2015/10/OV-Tricks-Tips-Tunes-and-Tweaks-Locke-In-Your-Success.pdf

        Otherwise

        In Model screen

        Use Yates, True Delta/Gamma, True Theta, In units of currency, check “combined put call Skews…. other settings on the screen do not matter except last field use (

        10Bid+Asked+Last)/21

         

        Even if the settings are the same be aware that OV has gone through several modeling changes since the program release which may result in Greeks differences from the program and some variances in adjustments and month to month results however long term results averaged out should be similar.

    • #2764

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

      You need to look at T+0 line . Greeks are a static number. You need to look at your greek trends to see when you are going to have problems area. You need to know how they are changing with price and times. Learn to anticipate what a 30 point down or up move will do to your position etc.

      • #8934

        Financial Freedom
        Participant
        @financialfreedomclassroom@gmail.com
        Points: 0
        Rank: Newbie

        Agree with what is said here about Dave’s presentation.

        I stopped following the standard M3 Delta guidelines after having watched Dave’s video. Projecting moves up and down the T+0 line and asking yourself what you are comfortable with is a better way to trade – IMHO. I think the whole point of the M3 delta guidelines are to teach us how to ultimately read, interpret and predict where the T+0 line will go…

        Just my 2 cents.

      • #2779

        Alex Porcaro
        Participant
        @alex.porcaro@gmail.com
        Points: 1 436
        APM230 Day Affirmation Challenge
        Rank: Sophomore

        When you look at the T+0 line, also remember that it is derived with a mathematical model and “it can sometimes lie” 🙂

        Backtesting and real life experience will provide the necessary knowledge of what to expect

    • #2763

      Rick Wize
      Participant
      @wizerick@gmail.com
      Points: 189
      30 Day Affirmation Challenge
      Rank: Newbie

      Jason,

      Although I’m also new, I’ve done a bunch of backtesting and had a very similar question. I started by focusing mainly on the greeks and found I would end up in problems with my T+0 line. I started paying more attention to the T+0 line (but also the greeks) & had better results. After watching Dave Thomas’s presentation to the Option Tribe earlier this week it re enforced the T+0 line process & I have continued to improve results in my backtesting.

      If you haven’t had a chance to see Dave’s presentation, I highly recommend it.

      Rick

    • #2758

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

      When I look at my trade, I will check the T+0 line first. How flat the line is, which side is having immediate risk and what is the market currently doing.
      Then, look at the Greeks, theta, delta, gamma and vega.

      My first question is that you pay more attention at Greeks than T+0 line or vise versa?

      Since it is M3, we use call, spreads, and move around the butterfly to hedge the directional risk thus making the T+0 line flat.

      Second question is that how do you trade the M3? keep flatting out the T+0 line entire time or at one point you will decrease the hedging and let theta and delta work on their own?

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