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Presentation on theme: "OPTIONS TRAINING PROGRAM"— Presentation transcript:


2 The M3 Trading System Entry and Adjustment Summary
Brought to you by SMB Training A World Leader in Options Education Created and taught by John Locke Locke in Your Success, LLC. “Know what you want, make it happen!”

3 Hypothetical Trades Disclaimer
Please note: Hypothetical computer simulated performance results are believed to be accurately presented. However, they are not guaranteed as to accuracy or completeness and are subject to change without any notice. Hypothetical or simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading. Since, also, the trades have not actually been executed; the results may have been under or over compensated for the impact, if any, of certain market factors such as liquidity, slippage and commisions. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any portfolio will, or is likely to achieve profits or losses similar to those shown. All investments and trades carry risks.

4 RUT M3 Summary The purpose of this Power Point is to be a quick reference summary for the M3. It is NOT a rule sheet. Entry: DTE Entry Positioning: 15 – 35 points below current price Planned Capital: per IWM call depending on butterfly call ratio Profit target: 10% planned capital. Lower target if number of butterflies is reduced. Preferred Delta Range: + 50 to (-) 100

5 Adjustments Buy ITM call verticals/sell OTM put verticals as an upside adjustment to: Increase (+) Delta Increase (-) Vega and project (-) Vega further forward on the T+0 line Increase (+) Theta and project (+) Theta further forward on the T+0 line Be cautious of adding negative Vega to your position in very low volatility environments especially when approaching major long term resistance levels

6 Adjustments Buy deep ITM calls or stock as an upside adjustment to:
Increase (+) Delta Increase (+) Gamma Trend

7 Adjustments Roll butterflies up as an upside adjustment to:
Increase (-) Vega Increase (+) Theta Increase (-) Delta To improve the profit potential in the expiration graph at a higher price level Consider rolling up if market spends a few days more than 10 points past the upper long strike of the butterfly

8 Adjustments Reduce butterfly/call ratio as an upside adjustment to:
Increase (+) Delta Increase (+) Gamma Trend Reduce margin You will likely need to reduce your profit target when you reduce the number of butterflies in the position

9 Adjustments Buy OTM call verticals/Sell ITM put verticals for an upside adjustment to: Reduce or eliminate upside risk Increase (+) Delta This adjustment is typically used a protective move for persistent up moves closer to expiration This adjustment, in addition to the above, will increase downside risk, reduce Theta and reduce the likelihood of gaining additional profits in the trade

10 Adjustments Reposition calls as an upside or downside adjustment to:
Reduce margin Reduce downside risk Make small alterations to Delta, Gamma, Vega and Theta

11 Adjustments Buy OTM calls as an upside adjustment to:
Increase (+) Delta Increase (+) Gamma Trend This adjustment is to be used ONLY as a TEMPORARY measure when there is a COMPELLING reason to expect a large move Once that move has occurred or the compelling reason is gone, the call should be removed and the position should be corrected as needed with one of the previously listed techniques

12 Adjustments Roll butterflies back as a downside adjustment to:
Reduce downside risk Reduce (-) Gamma Reduce (+) Delta In some cases, this move may actually increase (+) Delta but the reduction of Gamma and improvement in downside Gamma trend typically protects very well against large down moves This adjustment may also be used as an upside adjustment to increase (+) Gamma trend to the upside

13 Adjustments Make butterflies into a condor as a downside adjustment to: Increase (-) Delta and give yourself more downside room when closer to expiration in flat market conditions Be aware that this will decrease your upside (+) Gamma trend, thereby increasing your upside risk

14 Adjustments Buy OTM puts as a downside adjustment to:
Hedge downside IV risk Increase (-) Delta Increase (+) Gamma to the downside Increase (+) Gamma trend to the downside Used mainly closer to expiration

15 Adjustments Increase BF/call ratio as a downside adjustment to:
Increase (-) Delta particularly when the position is over hedged to the upside and rolling back the butterflies does not accomplish the result you want In general, we do not recommend removing upside hedging in the M3 but in this specific situation the hedging can be reduced as an alternative to adding butterflies

16 Exit when: Profit target or maximum acceptable loss is hit/exceeded
ANY TIME you are in danger of significantly exceeding your acceptable loss numbers with a 30 point overnight market gap AND the situation can not be corrected Any time it is not likely that you will gain any more profit from the position

17 Locke In Your Success, LLC
John Locke Facebook: Locke in Your Success Twitter: locke4success


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