john locke m3 – Page 5 – Travels and Trades

March 2- EOD

The RUT closed at 1065. Just above its 50% retracement and closing in on some very big resistance in the 1070 area. It’s now up 13% in 13 days. It’s at the historical upper end of bounce size.

There’s only been 5 cases since 2006 that NYMO closed above 290. It’s very likely we will soon see a relief, but who knows. Cobra (a great technician) suggests that NYMO is pretty much the only overbought indicator you can really rely on in extreme environments.

Ideally we can get any sort of pullback in the next few days without the market screaming too much higher. I removed most of my calendars today (as I mentioned) which actually helps with the upside risk (since they were all just about breached). I can withstand a move to 1080 without much more pain (still painful). I am going to do a lot things to the Rhinos if I can get a move to about 1045/1050 area which is only 1% away. If we get to late Friday and we don’t have any down move, I’ll have to start managing the upside risk and accepting the loss. Any move to the 1040 area puts my trades profitable, any sustained move above 1070 will likely make this a moderate losing month.

How do I think I did since last week??

Let’s start with March:

I kind of played this from an odds-perspective, the RUT move was quite extreme and very over-extended. I kept getting out of things on little dips and I got almost 50% of the trade off on one particular dip 3 or 4 trading days ago. I am glad I did, that was @ RUT 1033. However, I still have about 15% on and though I had low negative deltas and almost no gamma, this move up to 1065 at delta -200 and low gamma is still a 6k-10k loss if I closed it all now as opposed to 4 days ago. The odds were and potentially still are in my favor for a pull back sometime in the next 3-4 days. I don’t have any risk to the downside and almost no gamma, I have defined static upside risk so I am going to let this thing play out a bit longer. On one side, the odds were with me on waiting but on the other side, its 17 DTE and I could have just closed the thing down. I had low gamma, we were approaching extremes and I felt I had better opportunities to exit. I regret just not closing it down especially now that I see the RUT close is 1065! Even 1055 and hovering around there for another few days would have probably been net positive with the Theta.

Now April:

I’ve had pretty high negative deltas these past few weeks and I added some call BWBs and calendars to hedge. However, I think I should have probably added more at around 1045, but it wasn’t quite at the place I needed to add and for all the other technical reasons, I wasn’t in a rush to add. The big big run-ups have been happening in the last 15 minutes and much after when I do adjustments. I never like to do adjustments in the last 30-45 minutes. So when it hit 1050 yesterday, I’d have added if it was intra-day towards 1-2pm but it wasn’t. When it opened today, I was patiently waiting any modest pull back to add in more and while doing that, I reduced upside risk by removing most of the calendars that were starting to get over-run. Today it ran up again last 15 minutes and now it’s at RUT 1065 and my April trades are suffering.

Having looked a the run up and considering the NYMO information from yesterday, I figured that we would have a pull back to alleviate those extremes. Unfortunately now the pull back will start at RUT 1065 🙂 and I’ll be in the same place as before when we make that adjustment. I now have to keep on that plan of waiting for a smallish pull back as the upside risk is defined and manageable to about 1080 which, I cannot see happening before we retest 1045/1050. The run up has been too extreme and there’s just too much resistance in the 1070 area. If it gets to 1080, this market is doing something very different and I simply don’t understand it. At that point, I’ll have to start taking loss and adjusting the trade. So my plan for now is adjust at RUT 1045/1055 area or adjust at RUT 1075/1080 area whichever comes first.

All Trades Update

The NYMO is at extremes. The NYMO daily is above 280 and the intraday hit 91. The internal was weak and the NYSE UP to down volume was low (3.65). All previous cases happened in the bear 2008 and all gains were eventually erased (but it could take months). Another thing, Spy was up 2% and TRIN was above 1. 73% chances it closes red next day. Thanks to Cobra for that information. On the contrary, bullish percentages are very strong and the ascending triangle suggest more upside. Could this be a repeat of the 2014 Oct rally? I don’t know. In my plan, I always hold off on upside adjustments if NYMO is in extreme extremes like this and I wait for a pull-back to adjust. I did get burned in 2014 but that was with strictly MIC trades.

RUT has moved about 110 points and that’s at the extremes of what it normally does on a bounce.

To qoute Vbrandy from a recent skype group chat:

RUT moved -17.44% from Dec 29 in 14 trading days
Had an 8.22% bounce in 8 trading day most of which was first 3 days
Fell -9.08% in 8 trading days
+11.81% in 12 trading days

Because of all those reasons (massive overbought, high volatility environment etc), and the fact that it only hit my adjustment points after 3pm, I did not do any upside adjustments today. This is overheated. I still have some March trades on but I’ll wait till Friday or Monday to close on any modest pull-back. I don’t have too much upside risk in March still this took away some sig. profits. I was going to close most of it around the open of the day but held back and was going to wait till end of day as planned…doh.

My April trades are suffering big with this up move. I will have to adjust to the upside within the next day or two if it continues with strength. I’d like to give it till Thursday/Friday. I’ve got 1060 CC’s, 1050 CCs and 1000/1050/1080 call BWBs hedging now and those soon won’t be effective. THis will alleviate some of the upside issues as well as they start to lose as it continues up past the strikes. So yeah, these will all need to be removed soon and replaced if it shoots much past 1055. The odds are good that I’ll get a better adjustment point but still, this is stress. I can’t handle too much more up, maybe a touch of 1058 or thereabouts before I really have to adjust. I fear that this may go to the next RUT upside target of 1070 and I just can’t handle that move without an adjustment. Tomorrow I will be monitoring closely. This environment is pretty hellish.

As a completely unrelated trade, I did initiate some bearish butterflies at RUT 1052. I know this adds negative delta, but this is a completely unrelated trade. I bought several May and April 1020 BBs.

April Trade Update

Here are my April RHINO positions.

March Unwind – Nearly there

Today was a much better day for unwinding the positions and the subsequent P/L. I have about 15% of the position(s) left. I’ll probably close most of it out tomorrow. They are fairly benign right now–> Really flat. March expiration is finally approaching an end. How relieving. All in all, I am profitable for March (will know by how much once I finally close everything). I was trading quite large since December (a total of about 100-150 units of 5/-10/5 rhinos) and went through a 20% down move in the RUT followed by several 8-12% bounces. So, having had big money on, I got to experience some of the worst conditions while having the stress of a large position. A nice stress test. I mean, since Dec 31st (when I put it on at RUT 1140) it’s been pretty much the worst environment for trading these things, but they ended up doing OK. My maximum balance swing related to equity was about 12-15% in total and always during the highest volatility days. Of course, I am utilizing portfolio margin, this is why I mentioned the swing relative to equity. A few days after a high volatility day, RUT at same price, my balance would be right back to normal. Those are the effects of volatility on option pricing. Anyways, I can deal with that and I pretty much have a skin of steel now. I never felt totally uncomfortable through all of this despite the volatility and that’s a big change from the old modified iron condor days–>especially Aug 24 (I was extremely uncomfortable that day)! Glad I don’t trade that anymore. It must be a very challenging year for condors (well all trades are having difficulties, I see a lot of M3 traders doing poorly right now).

I did learn things I probably won’t do again, first and foremost, I will always close the Rhino structure if it gets challenged rather than trying to hedge it. As well, I’ll probably use upside BWBs as adjustments as opposed to calendars. I didn’t like how the call calendars reacted these past few weeks and I’ll be backtesting some of this later this week.

The bearish butterflies were a beautiful trade this month. They did fantastic. I just closed out most of them for a big profit. I had continued to put these on as hedges all the way down. What I’d do is put them on patiently after every modest bounce and I’d always get fantastic pricing on them and they were resilient on the way back up.

Other than that, I am waiting for a good day to get into the May trades. I didn’t like the pricing on Friday.

EDIT: I closed off my 1040 call calendars for 10.35 today when RUT was at 1040. I paid like 9 something for them at like RUT 1015…really?? I made $1 on it? Not exactly a great hedge to the upside. Anyways, I really got to look at calendars. Right now, I am just going to start using BWBs. It could have been because I put the calendars on late in the month.

Feb 26 – EOD Trade Update

I went ahead and added several 1020/1070/1100 Call BWBs to my April trades. I got the deltas lower and I got my fills at the low of the day (nice) but I am concerned about RUT strength today especially in relation to the April trades. This trade doesn’t love relentless 10%+ rallies and I do have some exposure up top. What especially concerned me was that it was steady down for SPX and even after hours, SPX accelerated its sell off, however, in contrast, RUT moved up and then maintained a narrow trading range and held its gains even after hours. There is some rotation happening and that’s why RUT had strength. This strength going into next week will require more upside adjustments to the April trades and though I got our deltas down for the March trades, they’d prefer a small (or big) down move to close. Any big move up will be somewhat painful across the board.

Feb 26 – Updates

This move up from 950 to 1040 (~11%) in the space of ten trading days has put a damper on both the March and April trades. Especially the 4.5% move in the space of the last 2 days. I am back where I started about 10 days ago, break-even for the year. I guess it’s not a bad result considering the moves and volatility. Just 3 days ago right when I was taking off my call spreads, I was up significantly (5%-6% of equity) and now I’m hovering around $0. Is what it is and the market sometimes does not makes it easy. Any pull back in the next 2-3 weeks will benefit the April trades and we’ll be right back up. I haven’t checked yet, but most of the pain is definitely in the April trades and March theta has offset some of the negative deltas as of late.

April Trades

So for the April trades, I am just about at my delta limits and am looking to buy a modest amount of call BWBs or call calendars to bring the deltas down just a bit. NYMO is extremely over bought, the RUT is sitting at heavy resistance near its Oct and Sep lows, it’s moved nearly 100 points and the volatility in the market is high = I will be a bit more patient with adjustments to the upside. Though it’ll hurt a bit if this turns out to be an Aug 2014 style run to the upside. Any move down to RUT 1035 today, and I’ll be putting more of them on, if it runs from here (1038), I’ll be slower to add as I await some exhaustion and for Monday/Tuesday to see where we stand.

March Trades

This has been some terrible timing for our 21 DTE removal of trades week. Sitting quite health last week to have a 4.5% move right into our most unpreferred area of both the Bearish butterflies and the Rhinos that remained. I had kept removing trades through the last 7-10 trading days but not enough to prevent some pain. I’ve got these deltas under control for now and it looks like I will wait till Monday/Tuesday to get the rest off. Taking off those damn call calendars at RUT 1008 after it touched into the 990s was a huge regret, especially now, that RUT is at 1039! That hurt a bit.

Frustrating week.

March Unwind Update (Feb 25)

Being 22 days to expiry and having this relentless up-move is just plain bad timing with how the structure of the March trades are. I’m giving back some profits in the exit, no doubt.

I got rid of quite a bit today @ 10:30 and I was going to get rid of more at 2:30 but the up move and being negative delta, has definitely hurt and I still have a lot on. I can’t believe I closed 1040 and 1060 call spreads yesterday @ around RUT 1007-1009 only to be at 1030 right now and now I am actually too delta negative…whipsaw and probably over-adjustment. I should have closed the equivalent number of Rhino’s at the same time, hindsight is 20/20. My thought process with the call removals, was that I was positive delta, we had just fallen from 1014 to 995 area and on the bounce to 1007, it was a good opportunity to get rid of some of the call calendars to put me close to neutral or slightly negative. I’d then start to remove Rhinos towards EOD and on Thurs/Fri. What ended up happening is a very swift move from the 990s to 1030s in the course of 4-5 market hours (4%?). Frustrating.

On the SPX side, I closed the entire SPX Rhino @ 1.80 credit (I paid 1.60 debit). We got a great price for it and it was bearish leaning so it was a good time to get rid of it. IT was a trade recommended by Brian Larson back a few weeks ago.

April Trade Updates

Below are three sets of Rhino trades for April for three different accounts of mine. There are multiple tranches in each and the risk profile is a combination of several. I am not going to do any upside adjustments to any unless RUT breaches 1035 with authority.

I started also putting on a new type of hedge trade called a “Space trip Trade” developed by Ron Bertino. This is essentially what ends up being a free hedge for large down moves but can also be an income trade in portfolio margin accounts where it takes very little margin. If the market stays neutral or falls, it’ll profit. The upside has little risk (-$600) and a 17% fall would produce 24k in about 4 months. The idea is to put on multiple tranches of this with both time and price diversity. It takes time for the profit hump to build and entering these periodically and @ different times and market positions, we should be able to get a nice hedge for our ATM trades like the Rhino and also produce some income on them as well. As time builds, we can remove our upside risk by rolling up the shorts a bit.

Here is what I have on below:

Feb 12 – Been a while

It’s been a while since I last posted. I will have to change that starting now. The market has been a bit of a bitch but for the year, I am slightly positive with a lot of potential in the trades I am in now. I am extremely happy with that result and felt like the last 6 weeks were my best weeks in trading in regards to risk management and overall trading skill. I feel great about it. I am managing quite a bit of money and the stress of management sometimes can overwhelm but I kept my composure throughout the entire run of volatility and followed my plans to the “t”.

I took the big bounce today as an opportunity to remove most of my “edge case” rhino’s (ones that are a bit past the shorts) and flattened my T+0 lines. I feel good about the positions and we’ve got at on of room on each side with little upside risk and about 5% room to the downside before adjustments. I probably don’t have to do to much for the rest of the month.

I entered some April trades as well, but I positioned them lower to give myself a lot of downside room re the volatility as of late and the upside has little risk as well since the cost of the Bfs were quite low (~$2.30 as compared to the regular $3). The last 6 weeks were stress and some of my earlier positions were obviously compromised but we have ended up in a position of great T+0 flatness and a slightly positive result for the 6 weeks. I can’t ask for more then that and I am loving the potential in the remaining March trades. I am eagerly awaiting the upcoming theta release and am looking to close around 21 DTE (another 2 weeks) for a nice profit!

Throughout the volatility I used bounces to purchase bearish butterflies as a hedge to the Rhinos. This worked really really well. My BB hedges are up more then the Rhinos and I am starting to unwind these.

Jan 7 – Trade Plan

What a brutal sell off to start the year. RUT is down 9% this week and SPX is a little over 8%. Yesterday was fine. Most of the trades were in our tents and profits were good. Today was a different story, the huge move and increase in volatility had the trades under water and, for many trades, outside the tent. The fills were horrendous and I resorted to shorting some ES/F, buying debit spreads and bearish butterflies to hedge the positions. I managed to close out a few higher BFs at a loss. The Rhino and RT trades can handle a lot, and they handled the 5-6% move this week fantastically but when it dipped below 9% and volatility increased, we started having problems with our P/L and with the trades themselves. That said, we’re positioned well into tomorrow and we would welcome a stall and decrease in volatility to get the trades in a good place.

Tomorrow, I’ll continue to add March Rhino positions with the great prices we’re getting and they’ll naturally be negative delta which will help hedge the other trades. My slight concern is a massive bounce which causes issues for the Rhino. I’ll also continue to add bearish butterflies and debit spreads as a hedge. The problem is not so much the big moves down but the fact that they’re occurring over night and there’s not much you can do about them when they already occur.

All in all, these trades are way easier to manage both emotionally and technically over the M3 and Weirdor trades. I was laughing (literally) yesterday when the market was down 5% for the week and my P/L neutral to up, however, that changed today and instead of laughing I was crying a bit 🙂 The increased vol and the terrible pricing on fills and the subsequent effect it had on P/L was a tad stressful.