I am close to adding the second tranche @ 1150. When RUT is 10 points over the long strike of the first butterfly you add a second tranche at that point it’ll be fully entered. On the upside, we’ll add OTM call calendars if the RUT should continue upwards. On the downside, we’ll roll the BFs when our delta reaches 250.
I had to adjust this today to deal with the sagging T+0 line from the extreme up move since last Friday.
I’ve added 10 (1140/1120) put credit spreads to flatten the T+0 line. Trade is slightly positive at the moment, which is to be expected when it’s nearly outside the tent. The longer out M3s are trades really designed for the time in the month when the trade falls back within the tent. It usually happens and that’s when we will hit our profit targets and pull out. As the month goes on, we continue to manage the risk and leave an opportunity for the trade to profit within the tent.
We put it on on Sept 23rd when RUT was at around the 1145 mark. It then proceeded to fall to about 1075 where we added some 1060 BFs. It’s now back to 1150. THat’s a nice 7% down and 7% move in a matter of what, a week?
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.
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.
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.
No adjustments still. Though I don’t think adding some verticals would hurt. The T+0 line is slopping just a bit to the upside. May do an adjustment tomorrow. The trade is holding it’s own.
As of Oct 2, the protector alpha is down about 3.5% (vs SPY -5.4%) and in the baseline portfolio we use 1.6x leverage thus the official trade is down about 5.6% real equity and probably a bit more today. The last month it has seen some correlation issues with the equities chosen vs the market. However, the mechanical system has outperformed SPY since the start of the year. We’ve also obviously experienced a little bit of whipsaw in the short rolls and quick overnight moves. These things will correct itself over time. It’s a long term portfolio. The equities will or should out perform SPY over time and the hedge will eventually pay for itself. The portfolio was up some money during the Aug 24 crash and the week following. The volatility in the longs helped and as well, the equities were still overall following the market. It’s just the past 3 weeks with healthcare and biotech falling, that we’ve seen some big disconnects. The challenges of trading 🙂
It’s definitely been the most challenging 5 weeks of trading for me. If it wasn’t the Aug 24 crash decimating my Modified condors, it’s an 8 trading hour 6% move that halves my M3 profits, or its a correlation issue in the protector alpha 🙂
Onwards and upwards I guess.
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.
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.
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.