M3 - The best strategy?

Discussion in 'General Discussion' started by Neri, Mar 19, 2018.

  1. CATTY

    CATTY Member

    If you have the positions, no matter what kind position, Butterfly, broken Butterfly, M3. When the market is down sharply, every positions are losing money. What do you do? What I do is trying to rollover one , two or three of short position over one month and make the losing position turn into profit position. The rollovered naked short position will be pending there. That is what Super Star Karen got troubles from. I only trade my money, so I can keep these naked short positions and rollover again and again until in these positions come out of the water in recently weeks. If you still do not understand, then you just forget what I say. Even you understand it, I do not suggest you do that. Keeping losing naked short positions ( normal each position could cost you 40-50K) is not everybody can suffer! Especially, keep it for half year or one year!
  2. CATTY

    CATTY Member

    May be in a short and easy way, just rollover short legs, one, two or three. rollover into next month and try to roll-down as much as possible without cost you more money!
  3. Jeffrey Suckow

    Jeffrey Suckow Active Member

    Question from a beginner who has not yet traded M3/BB/RTT/ etc...
    I had the impression that the M3 was designed in a way to be able to keep the loss within certain parameters (profit target 10% of plan capital, max loss also 10%).

    And that the win/loss ration was good.

    When you say: "If you have the positions, no matter what kind position, Butterfly, broken Butterfly, M3. When the market is down sharply, every positions are losing money."

    Does that mean that the M3 did lose "much" more then it's planned loss (in February and after) and that it was not possible to exit at -10% ?

  4. status1

    status1 Well-Known Member

    Let me see if I understand
    You sell a put vertical and when the market goes down you buy the put back and sell another put naked further out in time ?
    What do you do with the long position ? You leave it there to expire ? You did not mention anything about the long position
    Correct me if I am wrong but that looks like a short diagonal that makes you waste a lot of margin just to get back to even
    Why not roll the entire vertical out why just the naked short ? I don't see any advantage of doing that
  5. status1

    status1 Well-Known Member

    I believe those are the rules but if there is a big gap down or don't adjust in time you can loose up to 100% of your margin so it's up to you to get out at -10% the M3 trade alone is not going to do that automatically but that is a lot less margin than what CATTY is using

    Of course you can adjust a lot sooner You don't have to wait until you lose -10%
  6. Jeffrey Suckow

    Jeffrey Suckow Active Member

    When I asked, I had in mind the M3 following the rules / guidelines for adjustments once a day max as per JL (greeks + greeks trends) and the rule : adjust for -> 50 points down move of RUT does not drawdown more then max loss for trade (10%) and the extra rule from Kevin Lee (exit 14 days before expiration).
    I have seen videos where JL does well or a scratch in very bad market conditions.

    Was wondering how traders who were in the trade in February 2018 and after actually did ? How bad was the drawdown.

    A black swan event could cause 100% loss of margin. But I don't believe that was the effect of February correction?
  7. status1

    status1 Well-Known Member

    I have not traded the M3 so I cannot say anything specific about it I was just saying that in general if the market goes down fast and don't adjust quickly you could draw down probably more than -10% depending on how the trade is set up
    but even if it's down -10% there is no need to panic and sell everything you can always wait or adjust your way out of it

    Probably the bast thing you could have done in February is to do nothing if you had enough time left in the trade otherwise you probably would have over adjusted and than had to readjust after going back up
    I know that is a very difficult thing to do when you see the market going down fast non stop and your trade is losing money every minute
    Sometimes you have to stop and listen to the news and find out why it is going down before making any adjustments
    Is it just a normal correction or has something fundamentally changed Personally I have not seen any fundamental changes There was that thing with the vix collapse than the bond going over 3% or a new tariff announcement and it all ends up the same it goes down a few days as a lot of traders panic and sell everything than a few days later they come to their senses and buy it all back Tha main problem in January was that the market went up too high too fast so it had to make a correction the rest were just panic selling after seeing what happened in January and traders got used to the low iv in 2017
  8. Scott Slivnik

    Scott Slivnik Well-Known Member

    I have traded the M3 in the past and gave advice to a trader with a M3 on during the February drop.

    The trader tried to follow John Locke's guidelines by rolling butterflies down during one of the big down days. The problem was execution. The trader believes he/she lost over $2K due to slippage and was only able to roll down half of the butterflies because time ran out (market closed).

    I stated I would not have bothered attempting to roll butterflies. During FAST down days, only singles and usually verticals will fill at fair prices. Forget about 3-legged and 4-legged spreads. In that situation, I would have simply bought puts to reduce the positive delta by roughly 50% and hung on. If/when the market calms down, sell the puts (close them) and reposition the trade as needed.

    The trade referenced above lost roughly 20% and up to half of that loss was due to slippage.

    Mark17 likes this.
  9. Jeffrey Suckow

    Jeffrey Suckow Active Member

    Thank you both for your input.
    My impression is that the M3 is a good starting point for delta neutral strategies and "beginner" like me.

    I clearly get the point that one must have a plan ahead for a strong market drop (especially for the problem of getting filled on multi-leg positions).

    In the end, even a 20% drop on such a special event as Feb is not that bad. Would like to avoid it but it's acceptable if it only happens rarely and the other months do ok.

    Thanks again.
  10. Jeffrey Suckow

    Jeffrey Suckow Active Member

    To M3 traders:

    I want to start backtesting the M3 with OV.

    As a first step, I entered exactly the same legs as Dave Thomas in his presentation.

    I used the T-log at the end of the video to match everything (price for each leg and commission). I am using Volty model "variable" ( = Var 1 day).

    I have exactly the same cash flow value as him at the beginning of the trade.

    When I move to the next day and the same time as him, the RUT is exactly the same, but my Greeks & P&L are not

    Dave Thomas:




    I notice that the IV numbers are not the same even though it's the same day, same time (?).

    Should this be a concern ? Do I need to set something differently in OV to match the numbers on the video ?

  11. status1

    status1 Well-Known Member

    Hard to say since I am not using OV
    Perhaps Dave could answer if and when he may see your post
    Could be that he may have made another small adjustment that wasn't worth mentioning and did not post in the video not thinking that someone would try to follow his exact footsteps
    Or maybe there was an update in OV since the time the video was made and maybe the calculations have changed
    Not sure what else would cause it
  12. Jeffrey Suckow

    Jeffrey Suckow Active Member

    Thanks for the reply.

    Actually, Dave posted the T-Log at the end of the video. So I really made sure that was a correct match of every entry and price.

    Later on in the trade (12 days later). the P&L is much closer, but vega is negative for me and has gone positive for him.

    My plan is to first copy exactly trades that I can view in presentations. Then move onto backtesting my own entries and finally trade them live.

    Just don't want to spent countless hours to discover that I started out wrong from the start. o_O
  13. kgbist

    kgbist Member


    It is a known OV issue where they calculate different Greeks and IV every time you go back and forward in the dates.
    The Greeks will be different even for the same person going back to OV the next day.
    I heard it multiple times but dont really know the behind the curtain reason it is like that.
    Hope it helps and you just have to ignore the small differences.
  14. Jeffrey Suckow

    Jeffrey Suckow Active Member

    I had read something about that but didn't know if that had been corrected or was the same issue I am having. Even the P&L is different, but that is not very important at the start of the trade.

    I'll continue then. As long as my "copy" trades get roughly the same P&L at the end, it's fine.
  15. adam777

    adam777 New Member

    Thanks SVL

    Where is this located as I can't find it anywhere? I'm logged into Capital Discussions and also Aeromir.
  16. SVL

    SVL Well-Known Member

    The round table with Tom Hughes was on November 19, 2015.
    Last edited: Jul 23, 2018
  17. CATTY

    CATTY Member

    Any person using M3 strategy to make money? Any person use Road Trip to make money?
  18. johnyoga

    johnyoga Member

    Yes. Don't trade strongly negative Vega structures which are close to or ATM. And, ditch structures which have large potential loss to the downside, especially early after initiation.

    The themes on Capital Discussions are the same over and over and over: Either some form of Butterfly or Unbalanced Condor: M3, STT, Bearish Butterfly, RTT, Jeep, White/Green/Poka Dot Rhino, etc. Then, what people do is place crutches to the downside to compensate for using improper structures for this "season". Heck, even crutches to the upside are added to slow the bleeding from a rambling up market. In the least, figure out ways to null-out or reduce the Vega risk, and I don't mean simply playing around with going further out in time (i.e. Weighted Vega)..
    Last edited: Sep 4, 2018
    daniel likes this.
  19. tom

    tom Administrator Staff Member

    Quite a few Road Trip Trade (RTT) traders are making money. It's the most popular trade alert service at Aeromir/Capital Discussions. Here is a summary of my current open positions:


    Dan Harvey and I are presenting the Road Trip Trade at Aeromir tomorrow. You can register for the webinar here:


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