Author: T&T

Through the thanksgiving week not much was happening on my end. During that week, I avoided adjusting in what was a low volume up grinding market and didn’t have much to post. Though I should have, I have tons of thoughts and ideas that I could record here. Laziness. I also need to work on the structure of the posts and the content therein. I had started posting my graphs and adjustments previously but then OV had the catastrophic modelling changes and I had to switch to an old VM and re-enter the trades anew. This meant the graphs were not from entry and were inaccurate re P/L etc.

So yah, my intent was to get out 21 DTE but it was during thanksgiving week and the fills were poor. This was a bit stressful as the market grinded higher and higher putting pressure on my M3 trades. So I delayed exiting the trades and awaited some relief from the constant up move we saw (which is typical of a low volume holiday week). I was going to get out this week, but on Monday, due to the structure and safety of my trades, I decided to aim for Thursday instead (to pick up theta). Well, Thursday was a blood bath and volatility sky rocketed and though I sort of ended up exactly where you’d want to be in the graph, my P/L was nowhere close to what the models would suggest as Vega was a big issue with the massive increase in volatility. If the market stays exactly where it was but you get a decrease in volatility, then your position will gain its value. This happened on Friday, and in a drastic way (several %!). That’s one tricky thing about trading these things, the promised land isn’t always as it was promised re the models.

Today rolled around and the SPY regained all of its losses. By EOD, the trades have been relatively neutered and are doing fabulously. We should be out fully by Tuesday.

So on Thursday I ended up adjusting on the down move, buying some OTM puts, removing call calendars and call BWBs as we went from 1190s to 1160s right quick. My plan was to wait for a quieter day with reduced volatility to close the trades thus probably holding the trade into Monday/Tuesday of the following week. As I mentioned above, I couldn’t have been better positioned in the model but my P/L was literally $0 for the day despite the model suggesting massive profits. The theta was huge positive and vega huge negative, so as time passed and as volatility dropped, we’d see big recoveries on the trade. I had some reasons to believe the sell-off wouldn’t continue (see market recap section below). Then Friday rolled around and we had the biggest up day (sooner than I expected but) in all NFP Fridays in History I do believe. I mean, we went from 210 to 205 in SPY on Thursday only to from 205 to 210 on Friday. Intense (and challenging!). Volatility collapsed (fear left the market) and the trades sky-rocketed in value exactly as the model would have suggested. I adjusted and closed portions of the trades on the upside and we’re doing great re P/L. On Monday/Tuesday, I’ll finally get out of these M3 trades that remain for December (And quite profitably).

I’ve only got Rhino’s on for January and February. They are my bread and butter trade now. Love ’em.

Market Recap

A few weeks ago we’ve been slammed with very negative headlines that should have sparked sell-offs if we had weak hands in the market. We had the Paris attacks, WW3 nearly started with the downing of a Russian Jet by a NATO alley, we have 80% odds of interest rate rise in Dec which could cause liquidity losses equivalent to QE2 (600 Billion?) and still the market just brushed them off. The dip buyers in Aug/Sep are thick skinned (obviously) and if they didn’t sell in these headlines, its hard to image where they would. When the market shrugs off bad news and rallies, well, it’s hard to figure what type of event will cause a sell-off especially going into the Santa rally period. For that reason, I had suspected maybe a dip to the 1170 area but no more.

On Thursday, some big news came to of ECB, which caused currencies to go psychotic and brought about a big equities sell-off bringing the rut from the 1200 area to the 1166 area quickly. The exogenous nature of the news and the unknown effects of such big currency moves, did have me quite worried about my previous plan of expecting a dip to max 1170. I probably over-adjusted because of that. The TRIN wasn’t confirming the down move either. The thing is, in the market, when you’re a seller, you only get one vote and that’s it. You sell. That Thursday, we ran out of sellers, the one small group of over zealous traders that had weak hands are now gone and have no vote on Friday, what other weak hands were there after that day? Who had not sold on Thursday but would have sold Friday? We ran out of sellers and short interest was high, that is why we rallied off modest NFP news. I should have weighed that more. It’s all it took. Now we’re back to ~210 on the SPY. We have strong thick skinned hands in this market and we’re probably poised well for the Santa rally that everyone so expects.

The one thing that counters this is the terribly (sickly) breadth only 37% of NYSE stocks are above 200 day moving average while market is at all time highs (that’s not good),the bullish percentages are weak, smart money is not buying huge and we’ve got more distribution than accumulation suggesting a topping phase.

As for February trades,

I entered more at close today (1190/1150/1100) BWBs. I’ve got some (1200/1160/1110s) already active. That’s it.

The RUT outperformed today moving up nearly 0.80%. I removed some lower BFs’ on both the M3 and what’s left on the Rhino trades. I’ll be closing all of these trades before Monday and move into Rhino trades for February expiration. With the OV issues etc, I might not enter any more M3s. I feel much more comfortable with the Rhinos and I’ll add some bearish butterflies. Anyways, it has been a great month for the trades and I am looking forward to entering the February trades.

I did actually get 4 units on for February 1190/1150/1100 for $2.54. It’s a bit early but with the thanksgiving break coming up, I wanted to get some safe theta over the break and I had GTC orders that filled. The regular entry day would be next week on Thursday. However, I scale into my positions as I usually go with a lot of units.

Here’s what my trades look like. I don’t have exact P/L numbers yet because I had to switch to an old VM that had an older version of OV installed. Still not 100% confident in the M3 trades at the moment.

M3 #1

M3 #2

Rhino #1

Today I traded from the boat and it was awesome 🙂

Everything is going my way in the trades this month. I’ll be taking a lot off tomorrow close to profit target and I will start some Jan m3s and some Feb Rhinos next week. I’ve got another 2 Rhino trades hitting around 8% now and I am closing the big one for 10%. The M3 trades are all sitting with great profits as well. A good time to unwind and get into the next months trades.

In case anyone doesn’t know, the OV issues aren’t really solved and the modelling is definitely different.

John Locke posted “Regarding the Greeks numbers. The variable settling is currently showing too negative Delta and is projecting too much sag¦ IN THE FRONT OF THE POSITION. The EIOIO is showing too positive Delta and not enough sag ¦ IN THE FRONT OF THE POSITION.
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In contrast the EIOIO settling is currently showing too negative Delta (starting approximately) BEHIND THE SHORT STRIKES. The variable is showing too negative Delta AHEAD OF THE SHORT STRIKES. Once the short strikes are exceeded by 10 points the variable appears to be most representative of reality.”

I am fully out of the November trades at 3.2%. Not the best result but not terrible given the incredible movements we’ve seen during the trade. I believe we started it when RUT was at 1080 and we saw it touch 1200 and revert back down to 1155. I think I could have closed it at about 5-6% around 21 DTE. With my M3 trade types, I’ll probably take 6%+ at 21 DTE rather then trade closer.

The December trades are doing great now. I closed my Bearish butterfly at 20% and the RHINO is approaching its profit target of 10%. The other trades are all around 3-5%. This time around I’ll be closing them before next Thursday (21 DTE) and I’ll start entering some January M3s and some February Rhinos. I’ll be protecting the upside quickly this time around. If it looks like we’re starting the santa rally, I’ll be flattening my upside. I was somewhat reluctant to do it too quickly today but tomorrow and the following day I’ll be watching. This week is November OPEX and we’ve been rallying into opex lately and also, Nov 20 to Jan 5 is the period known as the Santa claus rally period. I’ll do this by removing some lower butterflies, adding calls or adding put credit spreads.

Here’s the RHINO I’ll probably take off in the next day or two at profit target (25k).

I tend to leverage quite a bit and I noticed on one of my accounts the amount of margin needed as trades approach expiration drastically increases. Something I’ll be taking into consideration for next month. I had to transfer funds from another account in to cover the margin when the RUT experienced big volatility spikes last week and as expiration in Nov approached. I went from having 50% of the funds available to being in a margin call situation. Anyone else that uses PM should take note of that. That said, I had like 1/5th the planned capital available in that single account.

The market touched 1200 on Friday and we’ve pulled back to 1178 and now are sitting in the middle @ 1185. We’ve seen a lot of the P/L come back into the trades which is nice.

All of the trades are doing well. I’ve done some adjustments to protect on the upside and I think we’ll have a solid Nov/Dec. I am looking to close out most of November trades on any pullback into the 1170s. I’ve already took off about 10% of the bottom butterflies to flatten the T+0 on the upside when we hit 1182 today.

OV issues have been an extreme headache but I found an old VM with 7.66 installed so I’ve been using that to model the trades. All in all, things are looking good.

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.



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.

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

Nov M3

Trade is doing well. I rolled the BFs forward today, added a call and removed some of the call calendars I had on as a hedge (not standard). I’m going to close the trade sometime next week and am aiming for about 15k or roughly 7.5% of planned capital.

Delta: -227
Gamma: -20
Theta: 1586
Vega: -2786

P/L: ~13,250
Target: 20,000



Rhino M3

Trade is doing well. I added in a call BWB on Thursday (1130/1180/1210).

Delta: -277
Gamma: -4.6
Theta: 692
Vega: -3024

P/L: ~11,423
Target: 25,000


Dec M3

Trade is also doing well. I haven’t had to do anything to this trade since inception on Oct 9th. Easy.

Delta: -181
Gamma: -2.8
Theta: 390
Vega: -1900

P/L: 8,516
Target: 15,000