john locke m3 – Page 10 – Travels and Trades

Oct 1 (November M3 Trade Update)

Not much to say. Trade requires no adjustments. Yesterday night the futures ramped up hard (about 1%) and today we saw all of the gains dissipate and the RUT is hanging around 1090 again. The trade is up ~5k on 250k planned capital. Being farther out makes this trade quite resilient. I am eyeing up an early entry on December M3 (77 DTE) we can get the BFs for about $7 and we can do a 30 lot with 1 call. Large downside protection and we can scale out of the BFs as time goes on and if we have any upside issues.

Sep 30 – November M3 Update

The November trade requires no adjustments. It’s sitting nicely and with profit. Should be quite resilient to the downside for the next few weeks. We’ve got a lot of room for movement. On the upside, we’ll need to watch our negative delta and with any collapse in volatility that line will sag and we’ll need to adjust.

Oct M3 (2nd Update)

Ok. Wasn’t as bad as I thought. According to optionvue the trades are at about half of what they were last week (so it appears to be about ~2% up) for the month across the board. Theta is kicked in full throttle being 16 DTE so we might just be able to eek out a 5-7% result by next week. We’ll see.

Sep 29 (Oct M3 Trades)

I got all the adjustments in to get these things under control after the 9-10% fall from last week. They’re all mostly still up some cash (as of 2pm) and they have potential to make some more but we’ll need some market cooperation.

Edit: Ah, yeah another 15 point fall to end the day 🙁 From the speed of these falls, It would appear the world is ending sometime soon? No idea if the trades will be up money right now. This month has been a never ending struggle and will continue to be but our Theta is strong and if we can get just an ounce of calm or a bounce to reduce the volatility we should be OK. Right now though, we’re not moving from where we were.

I am not into managing these trades into expiry and I am looking forward to farther out trades. This market is nuts right now.

Oct M3 (Update)

The October M3s got crushed today. The little bit of catch-up we had since Aug 24 has been brought back down for the time being. To give an idea, on Sep 21st, the trades were up about 4% and now they’re up about 1% ish.

I mean, given that this occurred about 17 DTE (close to expiry) and we moved nearly 100 points (9%) in 6 trading days. I guess it’s not a bad result. It’s just frustrating as I had made some headway with the Aug 24 crash that drew me down and the protector is doing awful during the last few weeks.

I think I have to move to farther out M3s and close ’em before 21 DTE as I’ve mentioned before.

As for what we can hope for re the Oct trades, well, managed well, we can close them at target but it’ll take some market cooperation. It was a pretty bad day but I adjusted well I think. However, I do have some upside gamma trend issues if a bounce is >2% which I need to fix tomorrow.

Nov M3 (Update)

The NOV trade required no adjustments today. It’s now below its short strikes and I may need to roll them back tomorrow if we go any further down. Delta are all fine, Greek trends are all fine. The trade is up ~3.5k

Trade Plan – Sep 28 (October Trades)

The RUT is at the August 24 lows (1098-1100) and SPX is at 1894 right now. That was a nice 9% drop from its Friday high. The OCT trades are still profitable though despite the drop. However, at this moment, they aren’t as profitable as they were and our catch-up from the Aug 24 fall is now stunted a bit. I mean, the volatility is packed in there thus reducing the price of the BFs and we’ve had to make several adjustments. Some of which were on the upside early last week and of course, I’ve obviously had to adjust on the way down towards the end of the week. Likewise, today I had to adjust pre 2:30pm because all of our delta limits were exceeded by a large amount. I did most of the adjusting on a little bounce to 1106/1107 where I sold a bunch of 1150 BFs and added in place a bunch of 1080 BFs. That should hold until we get to the planned adjustment point at 2:30. Looks like we’ll have to move around a lot of things. I don’t love the positions right now while we sit on a major area for RUT (previous lows) and having the volatility be so high. Who knows, if things go our way, they can still do good for a close probably sometime next week.

It looks like ES (SPX futures) will test the 1875 double bottom. We’re extremely oversold on most indicators so it should test and bounce but who knows.

The November trades are all doing great. They’re all up $.

As I get out of Oct trades and as things stabilize, I am looking to do more long term capital efficient M3 (double sized with same risk potential) but starting them 65 days out and closing before 21 days to expiration. The double sized aspect will offset the closing of the trades before 21 DTE where you’d expect a lower profit potential. A few guys I’ve seen, trade the M3s further out and close them before 21 DTE but they accept a lower profit target. They have very little stress as gamma is quite tame and it requires a lot less adjustments that far from expiration. My thoughts is to make up for the profit potential by doing a capital efficient double sized M3. Again. the double sized M3 still has the same total risk level as a normal

The protector alpha is not doing great right now. It’s had some correlation issues these past few weeks but that should fix itself over time. The stocks have still done better overall than RSP.

Sep 25- M3 Trade

No adjustments needed today. We’re slightly delta negative which is where I’d like to be as it gives cushion in a market fall re increased volatility. Since we’re a vega negative trade, any increased volatility hurts the trade. We’ll adjust on the upside once delta reaches -500 within the tent and -350 or so outside of the tent. As the market goes up, volatility tends to drop, and this will cause a sag in the T+0 line on the right hand side of the graph. We want to monitor this and usually we’ll add put credit spreads ATM to address and eventually, if it sits for a few days outside of the tent to the upside, we’ll roll the butterflies forward.

Sep 24 -Trades

On Thursday, the RUT touched 1194 and then proceeded to fall to 1125 within 4 trading days. What’s 70 points between friends. I am starting to get used to this volatility. It’s a lot easier to handle with these M3 trades. However, some of the October trades I had on had to be adjusted today because of the big drop. 70 points is a lot and our gamma trend on the downside was getting a tad uncomfortable and some of the trades had hit delta limits. With one trade, I went well past the limits in the AM so I adjusted early (I am trying to adjust once a day at 2:30pm) but I felt I had to do it on this one. No biggie but a bit of an annoyance. I adjusted in the AM once and again around 2:30. I had some gamma trend issues on the downside and corrected these. Apparently my timing was not impeccable as the market rose after I did the adjustments. That’s part of the game. These occurred while RUT was around 1128-1132 today. It’s now at something like 1138.

I’ve now entered an M3 trade for November which I’ll post here and can be followed on a day to day basis. Here it is:

It’s an M3 with a mix of 1110s and 1100 Butterflies. Each day I’ll post the current P/L and adjustments. It’s a 5 lot with planned capital of 250k trade with a profit target of 25k and a max loss of 25k. The actual at risk amount is significantly less than 250k but that’s our planned capital amount and what we base the returns off of. Standard M3 stuff. You may end up using all 50k but most of the time its not. You have to plan for it though. Adjustments etc cost.

I added 1110s a day or two ago and I filled it out today with some 1100s. The price of the BFs were quite low and less calls were needed to hedge. We’ll have to keep an eye on the upside trends. This will be a first official trade for this blog and I’ll be posting all adjustments and results day to day.

Trade Plan – Sep 24

The market is going to open down slightly today at some major ES supports (1910-1915) with more support at 1898/1900. If we have a close below 1898, then we can expect a retest of the lows at 1880. If it can get above 1915, then I expect a retest of the 1940/1950 level. Yellen speaks today at 5pm EST and likely the market is going to putter around until then. I’ve got some adjustments to do today on the M3s for October and I’ll be looking to enter November trades.

The protector is down about 1.9% now vs SPY down about 6.2%. The protector lost a lot of value from Sep 8 till present due to the volatility collapse coming out of the long puts. The hedge part of the trade was what caused this loss. During the week of the correction, the protector was actually up about 1% due to the volatility in the longs. It did what it was supposed to do but the weeks following, as the fear leaves, the hedge starts to normalize and we experience some of that initial hedge gain dissipate. This is what is happening now.

The options trades have gained well during the past two weeks and we’re starting to go risk on today and tomorrow which might be good timing with this increased volatility.