Nov 5 – Trade Plan

The market pulled back a little yesterday and allowed me to do a few more adjustments to flatten out the T+0 lines to the upside. The M3 and Rhino trades don’t love big up moves like what we’ve seen in the RUT during the past 25 days (9% up). Usually, the most you can hope for is slightly positive to break-even on those types of months. The NOV positions are all still up money but I await a more decent pullback to get them closed out at profit targets. They’re doing well considering and as we’d expect in the current market conditions. When RUT was at 1140-1160 we were rocking but at 1190-1200 they’re just mediocre, especially since the 50 point move occurred closer to expiry. This sets up opportunity for December and January so I just wait it out with patience. A mediocre month during a big up move usually leads to out-sized gains in the months following.

The December trades were profitable but now are just hovering around slightly negative to break-even. All as expected. I think these trades are setup great going into the next 40 days.

The January trades are mostly entered and also setup perfectly. I entered a lot of them with RUT at highs. They naturally have a bearish bias so they should do well with little upside risks present. Even if we top out at 1240 (see below), they’ll do great.

The RUT usually moves an absolute maximum of 160 points (the most extreme) and we’re 120 points into that. That puts the top at around 1230-1240. However, More often and usual, the RUT moves about 120 points before reversing and that puts us at 1190-1200 which is where we sit now. My plan? I am being as patient as possible with adjustments and trying to get the T+0 line flattened on pull backs. If the RUT pulls back to 1150 area, we’ll probably exit most of our November trades at profit target. If it continues up, we’ll eek a bit more but they’ll be more in the 1-5% range.

Yesterday I attended the Locke community coaching seminar and had taken some notes that reminded me of some things.

1. Using BWB or BFs as upside adjustments (sort of like the rock trade) instead of put spreads. I had actually done a few like that this week but had not back-tested it extensively. Someone in the Locke community has and the results were apparently fantastic. This is on my list to do (verify). Essentially, you add a front-running broken wing butterfly or butterfly in front of the market to hedge or flatten the T+0 line, and to reduce vega and theta issues. Mostly though, it works very well for reducing Vega. This will do better if you think the market is going to hang around there or only go up a bit more. A put spread would do better in a larger up move.

2. The other adjustment that I don’t actually do much but was mentioned is the stretch adjustment on the M3. Essentially when adding a put spread, you can also roll the upper long forward to get it closer to the market. I usually only add put spreads and roll in the bottom (capital reduction) or top long (flatten t+0). I hadn’t rolled out the top long before (get tent closer to market) and will be reviewing this in the upcoming days.

I haven’t posted screenshots in the past few days as I awaiting Option Vue to fix the crazy issues they’ve been having with volatility modeling.

Nov M3

    This trade will benefit greatly off any pullback and will probably hit profit target at 15-20k. If it sits, we’ve got some theta and we’ll likely pull it off at 6k profit. If it goes up, we’ll adjust more probably by adding a BWB ahead of the market. That’s not standard but I can’t see it going much farther than 1210 on this go and for that it should be better than a Put credit spread. In either of the three cases, the trade will be profitable despite a 9% up move in the RUT.

    Screen Shot 2015-11-05 at 9.21.34 AM

    Dec Rhino

This trade was up about 11k but now sits around 3k which is as expected for the environment and the time in the trade. I am extremely confident in the trade and believe that given the huge up move, this trade will hit targets in the next 3 weeks. For now, it’s about patience.

Screen Shot 2015-11-05 at 9.24.46 AM

Dec M3

This trade is doing just fine and is sitting in a great position. It’s got minimal upside risk if the market should keep on keeping on. It’s got huge range to the downside. All in all, a breeze of a trade. Since the start of the trade, we’ve added
8 (1170/1160) put spreads
5 (1180/1160) put spreads
5 (1140/1120) put spreads
5 (1170/1160 put spreads

Screen Shot 2015-11-05 at 9.26.56 AM

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