Tag: m3

Oct 8 (Oct M3 + Protector Trade Update)

I’ve made the positions more or less benign going into fed and tomorrow. Not a great result overall as the market stuck around 1152-1154 area most of the day which was the worst place it could have been to start closing the trade down. We just never had any luck with the market and these Oct M3s.

The protector Alpha had another bad day with Ebay falling 8% (on no real news) and UHS, HCA falling 3% with only little corresponding positive offsets (GCP and EXC sitting at +1%). Just not having any luck with this protector portfolio right now. It’s weighing everything else down. Eventually it will work out but it’s uber frustrating.

Oct 7 (Oct M3 + Protector Update #2)

I’ll be exiting or at least taking risk off, throughout Thurs/Fri. With this 1.5% 20 point up move on the RUT, the trades haven’t moved anywhere since last week really and we’re just not making any headway. It’s just too much up (7%) and too close to expiry. I could have gotten fancy with it and added some tents in the front, but that’s outside my trade plan. The idea was to manage upside risk by keeping it relatively neutral and that means that we really aren’t making anything and in fact losing some profits as the moves are quick and the volatility drop was large. The mini pull back yesterday did give us a little bit of Friday’s profits back but todays “up” move took those away. It is what it is. The trades did fine through the moves but not even close to as great as we were on Friday when the trades were under the tent.

Re Protector Alpha: I increased exposure in equities to replace ALFA and I sold a few more puts to try and catch up on the payment of the hedge (which is behind now). I rolled my 199s and 198s to 200 on the dip today (good timing) and sold some extras (also good timing). Most of the equities did well or better than SPY today which was nice to see.I’ve got 205 December long puts that I have to start thinking about rolling to next year. Over the course of 3-6 months, we should be OK and any correlation and/or whipsaw effects on the hedge should be evened out. Sucks that we’re sitting just below a 4% loss on the year. Not much else to say here.

Oct 7 – Trade Plan (Oct M3s and Protector)

I had to adjust the October M3s as RUT hit 1145/1146 area. Not something I wanted to see as the upside on these are weaker. I sold 1100/1080 credit spreads and rolled up some of the bottom longs. Of course, about 5 min later the market rolls over to 1138 but the adjustment is down about 1200-1500 right now. Not terrible and I had to do it this close to expiry. The delta and T+0 lines were not in a good place if the move should continue. One of the better technicians I follow expects the RUT to expire in October and around 1190. I take that only modestly into consideration but I do believe there is room for this to continue on. Any more significant up and we’ll have the same sorts of mechanics that we had in October of last year.

I am so happy to soon get out of this trade and move on to December and finalizing November.

One of the 24 equities (though more heavily weighted) I have in my protector portfolio is ALFA which is a great little ETF that follows filings of out-performing hedge funds. I did not realize it hedged itself by going market neutral when the market is below its 200DMA at end of month. Fuck. So I was hedging it since Oct 1 when it was already hedging itself. The ALFA holdings triggered the hedge on Oct 1st and since then has not been participated in the rally. This is one source of my correlation issues. I’m fixing it by replacing it with a normal equity but I will leave it as part of the portfolio since its self hedged. A due diligence error on my part. Though it may end up fine if the market rolls over or stalls around the 195 area.

Oct 6 (oct m3)

The OCT M3 trades caught up a bit today (recovered about a third of the loss in profits on Monday).  They are looking OK and they are all profitable. I did some adjustments to reduce Vega and increase theta.  It is reasonable to probably close these down at our Friday profit highs if we don’t have any extreme 2SD moves in either direction. I’ll probably reduce them to fairly benign positions by Friday. Well really, this is what I started to do already.  I have already cut down gamma and start rolling up some of the bottom puts while rolling down some of the top puts thus reducing both upside and downside risks (reducing gamma) while still maintaining positive theta and negative vega.

Oct 6 (New Trade: M3 Rhino Variant)

I’ve put on a variant of the M3 which is started a bit farther out in DTE (usually 77 days till expiry). It’s the same concept as an M3 except it utilizes a broken wing butterfly instead of a call. The trade is a bit more rule based as well. I’ll be entering a normal M3 around 67 DTE and an M3 Rhino about 77 DTE and I’ll be closing them around 21 DTE to avoid gamma issues and to make trading much easier especially in a large account.

You can see the risk profile is almost identical to the original M3. The management is slightly different though. On the upside we use call calendars and call BFs and on the downside we simply roll the BFs back.

I’m expecting to have much more consistent results going forward with these further out DTE trades. They won’t be glamourous but they’ll be stable and consistent with lot less stress. I trade a big account and managing several theta based trades 7-10 DTE is challenging and I am tired of it.

Oh: Kudo’s to Brian Larson for creating this trade variant of the M3.

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Trade Plan (Oct M3 Trades)

The October trades got brutalized today. On Friday afternoon the RUT touched just below 1080 and now it’s closing Monday at 1142. That’s a 6% move in a single days worth of trading. The trade type cannot withstand that kind of movement this close to expiry. I adjusted in a flurry on Friday and at the end of the day the trades were OK. I was a bit uncomfortable with a fall in volatility and a rise the RUT but everything was in decent shape, the T+0 lines were relatively flat. Today it gapped open and didn’t stop. I did some moderate adjusting this AM but it wasn’t enough and the trades lost a lot of their profits with a big reduction in the volatility and an oversized moved to the upside. It is what it is. I’ll be looking at them tonight to see what we can do but likely I’ll start to peel them off and we’ll take whatever profits are there. The recovery from Aug 24 goes very slowly.

Trade Plan (Nov M3)

No adjustments today. The upside delta is getting a bit high but we’re not at an adjustment point yet but will be soon. We’ll likely add a few verticals and if it spends about 2-3 days outside the tent then we’ll roll up the BFs. We’ll be aiming to be out before 14 DTE and hopefully before 21 DTE. This is how the trades will be managed going forward. I won’t be trading too close to expiration.

This trade has survived a lot of movement and is still profitable.

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Oct 5 – Trade Update #2

I just read that Friday’s intraday move was the biggest in 4 years. Quite a short squeeze have going on. We’re now at RUT 1134 which is another 1.75% and marks a 5% move in 5 or so trading hours for the RUT. It really does hurt the October trades unfortunately. Moving up that much in 4-5 trading hours is just too much for the trade to handle while keeping its all time high profit numbers. It’s going to be positive but man, it does hurt a bit. I’ll be doing most of the adjusting at the planned 2pm time. Hopefully it comes down a bit. I did some adjusting but decided to wait until 2pm since its probably better to follow the plan off such a heated up move. I’ll be watching any retracement to start putting in place our upside adjustments.

Oct 5 – Trade Plan (General)

It’s been a very challenging 5 weeks. It started with the Aug 24 correction which was followed by weeks of big 5-10% moves in the RUT as we approached the ever important fed announcement. On Fed day, the RUT tags 1194 only to correct back down to 1078 (nearly 10%) in a matter of 5 trading days only to now bounce about 4% into Monday. Managing theta based market neutral trades through these kinds of moves is a test of patience and resilience.

On Friday, the RUT was down 1.7% and closed the day up about 1.4%. This AM it looks like it’ll open another 1% higher. That’s a 4% move to the upside in a matter of hours. Quite impressive. Likewise, the SPY futures tagged 1885 on Friday and is sitting at 1957 right now. That’s nearly 75 points in a handful of trading hours.

The extreme upside movement will give some problems to our October trades. My plan is to close a bunch of 1060 BFs and get my T+0 line as flat as I can to the upside and start closing down the trades throughout the week. The upside move is pretty extreme and quick but that’s usually the way. It was touching lows and now its going to blow past 1120. When it’s this close to expiration it can cause some issues on the upside with a sagging t+0 line as volatility floods out. I don’t like adjusting near the open, but I think I have to nip this in the bud and make sure we’re not exposed on the upside for any further run. The RUT is one of the lagging indices and probably has more room to run.

The November trades will likely have a bit of a sag in the right side of the T+0 line that we’ll need to fix. Nothing major.

Hopefully the Protector Alpha can start catching up again, it’s been underperforming the last month.