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M3 Questions

Discussion in 'Options' started by MattW, Oct 4, 2015.

  1. MattW

    MattW Moderator Staff Member

    Hi all,

    I'm new to the forum, and just started trading the M3 (what better time to try a new strategy than in a major correction and market landscape change!), and had a few questions that I hope some long-term traders of this system can help with.

    My question boils down to watching the T+0 line vs. the expiration graph. Based on the videos, I think the important thing is to watch the T+0 line and hedge accordingly to keep it as flat as possible (no gamma risk) across a wide swatch of price points, with it tailing off to the downside at some point. But if my delta/theta ratio starts sucking, do I try to add theta without adding too much gamma, or just leave it alone if the line is flat? Also, does anyone use front month adjustments to kick up theta (hopefully without causing a gamma problem?) I'm attaching a TOS screenshot of my current position as of Friday, and the adjustment I'm looking at making Monday depending on whether or not the market stays put over the weekend. Any and all advice is appreciated! I have to say I'm excited to finally find a system that seems to be relatively neutral gamma positive theta. Thought that wasn't possible! I guess the risk lies in the vega, which is a little easier to deal with.

    My current position (1 RUT butterfly, IWM call with verticals on (I flubbed the entry greeks two weeks ago and had to immediately add verticals to fix it - womp womp):

    Screen Shot 2015-10-03 at 11.54.52 PM.png

    And my proposed adjustment to flatten out the upside "sag"

    Screen Shot 2015-10-03 at 11.55.19 PM.png

    And here's the T+0 line by itself using Oct. spreads instead of Nov spreads for the hedge. Notice the theta boost, across the range compared to the Nov spread.

    Screen Shot 2015-10-03 at 11.57.29 PM.png
  2. DavidF

    DavidF Well-Known Member

    Hey Matt, welcome to the forum. Regarding just watching the t-0 line, that will only give you the current risk, as you allude to in your post you´ll still lose money if the other greeks are off, for example above the tent in the dead-zone where theta can be low/negative and vega is positive. The T-0 zone only shows you delta risk/notional exposure.

    You can look back at M3 threads (M3 in title, one is called M3 April) and you´ll see discussions on how to deal with the upside on the M3. Check out Kevin Lee´s posts on the M3 and how to trade it, heap of great info.

    Another less discussed but viable method is what Brian Larson does in his broken wing trade (calls it the rhino). It´s similar P/L to the M3 at start up but it behaves a little differently above the tent, losing less theta. He deals with this using calendars (or call BWB). His front month on the calendars is same as BWB but you could use closer in to collect more theta if the other greeks were acceptable.

    I´m new to this stuff so take this all with a pinch of salt, am sure more experienced traders will chime in if I´m way off or there´s more to add.
    Last edited: Oct 5, 2015
  3. Capt Hobbes

    Capt Hobbes Well-Known Member

    I second the recommendation of other M3 threads and Kevin Lee's posts, among others. Note that some of them, including the "April M3" thread, and in the paid member-only forums.

    You'll see it mentioned more than once that a trade like M3 where flatness of the line matters pretty much requires OptionVue. TOS and ONE models are less accurate in predicting the actual PnL with price changes. TOS may show a flat t+0 line when OV shows one with a noticeable sag, and the real position will behave closer to the OV prediction. JL even posted an urgent video about it when he first discovered the discrepancy:
    GreenZone likes this.
  4. MattW

    MattW Moderator Staff Member

    Thanks guys. Will dig into the forums and read up. I'm trading on a Mac, and hate Parallels. Might have to cave and buy a craptop to run OV.
  5. Capt Hobbes

    Capt Hobbes Well-Known Member

    Yep, that's exactly what I did. :) Another reason is on Windows I can pull real-time pricing data from TOS into Excel and do stuff with it.
  6. MattW

    MattW Moderator Staff Member

    I'm a free member of the capital discussions site, but I can't find the April M3 thread. Every time I click forums, it just takes me back here. I do see lots of old videos and blog posts, but nothing entitled April M3. If I'm a paid member, are there additional forums hiding somewhere?
  7. GreenZone

    GreenZone Well-Known Member

    Yes, there are many forum posts which are only available to paid members, including the M3 thread you mentioned.

  8. Bruno

    Bruno Moderator Staff Member

    Same here. I also wanted to make sure I don't run into any connection problem, so i went for a Windows Server VPS where I run OV, TWS, TOS etc. I access it through RDP so far less footprint on my Macs than Parallels.
  9. Capt Hobbes

    Capt Hobbes Well-Known Member

    I was considering that. What provider are you using?
  10. Bruno

    Bruno Moderator Staff Member

  11. Paul

    Paul Member

    Love that "geek quote", Ron. Reminds me of my assembly language programming days back in the early 1980s!
    GreenZone likes this.

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