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M3 TRADE

Discussion in 'Options' started by Rod M, Nov 5, 2014.

  1. Rod M

    Rod M Well-Known Member

    Based upon yesterday's discussion of John Locke's M3 trade, I attempted to build one in OptionVue today. I know that the "ideal" is 56 days, but I am using Dec 19 expiration with the following position. 20 lot 1090/1140/1190 (puts) with a single 90 delta call in the same expiration. RUT is at 1170 as I place the trade.

    Here is my question. In both last night's video and in John's recent video, the T+0 line is flat and slightly above the 0 line. However, in my models, my t+0 line is flat, but slightly below the 0 line...in today's model, I show a consistent $2400 loss for T+0.

    I would appreciate any info as to how to rebuild this trade so that the t+0 emulates the models shown last night and also by John Locke...ie above the 0 line.

    Thanks.
     
  2. ACS

    ACS Well-Known Member

    What are your slippage settings in OV?
     
  3. Rod M

    Rod M Well-Known Member

    They are at the default setting... "hit bid/ask"

    thank you for helping...should I change them ?
     
  4. ACS

    ACS Well-Known Member

    John recommends using no slippage in OV. Try it that way and you should see the T+0 line you're looking for.
     
  5. Rod M

    Rod M Well-Known Member

    Thank you...that fixed the problem. Just curious...what is your track record so far with this trade ? I had overlooked it until last night's seminar and the presenter seemed to have pretty good success with it over the past couple of years.
     
  6. ACS

    ACS Well-Known Member

    I have more experience with the Bearish Butterfly than the M3. For example, I entered my Dec trade on Oct 24th as an M3 since the RUT had been down so much but converted to a BB last Friday. I do know people who use the M3 a lot more than I and they are very pleased with the results. I wish I had used it more last year when conditions for the BB were poor.
     

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    Last edited by a moderator: Nov 5, 2014
  7. Rod M

    Rod M Well-Known Member

    Unless I am missing something, the Bearish Butterfly looks like the M3 without the added call. I can see the value of this in a downtrending market.
     
  8. ACS

    ACS Well-Known Member

    The M3 is a single hedged butterfly that has a very flat T+0 line and gains mostly from Theta. The BB scales into 3 butterflies without any hedge thus making it a higher risk & reward trade than the M3. It is a lot more about Delta than the M3 and has stricter rules compared to the M3. The BB does well in volatile and choppy markets but low volatility up-trending markets are very bad for it. I'd say the M3 is much better as a bread & butter trade while the BB can be added when conditions are opportune.
     
    Jason A likes this.
  9. Rod M

    Rod M Well-Known Member

    thanks...I'll have to look at a few videos on the Bearish butterfly and come up to speed on it.
     
  10. Rod:
    There is a problem with your initial set up. For a 20 lot of the butterflies you should need to use 2 calls to flatten out the delta.
    To follow Locke's trades use the following OptionVue settings:

    Model Settings
    · Yates Options Pricing
    · True delta, gamma
    · In units of currency for Futures Options Theta, Vega
    · Check Use combined call/put skews
    · Set Slippage to None
    · Include Commissions
    · Set Option Market Price to (10Bid + 10Asked + Last) / 21
    Model Volatility Settings
    · On the Horizontal Skew tab check the Enable CEV Modeling.
    · On the Vertical Skew tab check the Use combined call and put skews.
    · On the Other tab select the Variable model.
     
  11. Rod M

    Rod M Well-Known Member

    Thank you for detailing all of this out. I double checked all of the settings. This looks like a great trade to work with and I have already set up my first one for Dec 19 - a little late since he likes 56 days, but a start.
     
  12. Andrej

    Andrej Member

    Guys, I'm still still little bit confused about proper OV settings. As far as John explain he use this settings only because he's using deep ITM options where is not enough volume. I trade most of the time Iron Condor variations and combining put/call skew settings put my P/L dot under D+0 line while "normal" modeling put me on line so I don't use it. Do you use it combining skew only because of doing same trades as John or did you find this modeling more accurate? Thanks a lot.
     
  13. ACS

    ACS Well-Known Member

    I trade the M3 & Bearish Butterfly, use John's suggested settings in OV and I'm very satisfied with the resultant analysis. I have TOS and had a trial to ONE and both programs produced quite different Deltas from OV. I noticed this when I tried to back test John's V-Condor trade and the 10 Delta puts & calls were strikes apart in TOS/ONE vs. OV. My advice is to use the software and settings that produce the most accurate results for your particular trades.
     
  14. Tps

    Tps Guest

    Hi all - does anyone have some basic M3 guidelines (setup and adjustment) that they would be willing to share with me? I'd like to do some back testing.
    thanks,
    toddpsolomon@gmail.com
     
  15. Rod M

    Rod M Well-Known Member

    Currently, I am finding that a setting of "small" on slippage more accurately represents the position value that I see in my live IB trade. One thing that does concern me about John's presentation of the trade is that he, according to his disclaimer, is only paper trading the position. Therefore he is never comparing what OV is showing as P/L against what a live trade would show.

    I would welcome comments from others who are trading the M1 live.
     
  16. uwe

    uwe Well-Known Member

    He always says that (paper trading) is for regulatory reasons, that he can't reveal live results. I don't know why.

    But sometimes he shows his 600k live account (in OptionVue).
     
  17. Rod M

    Rod M Well-Known Member

    To clarify my earlier posting, what I meant was that by varying the "slippage" setting, I can make my trade look better or worse than it is. A setting of "NO' slippage will give me a very pretty T+0 line..especially out to the right side of the trade, but, may be over generous in valuing my trade..since OV assumes mid-values. I may get great fills in IB, but I will rarely get a perfect mid-price fill in both my opening and closing orders. This is why I feel that "NO' in slippage can make the position look more generous than it really is or will be.
     
  18. ACS

    ACS Well-Known Member

    I use no slippage because for my open positions I don't need an exact value. I just need to know the general P&L. For actual entry and exit I start with the OV spread price but I always look at the mid of the three flies (put, call & iron) and the two verticals in IB before entering an order.
     
  19. Rod M

    Rod M Well-Known Member

    Something I realized after typing my previous entry is that the entry slippage is accounted for by entering the exact opening prices into the trade log. Therefore I am only concerned with the closing order slippage. Therefore a setting of "small" will probably work OK, but I can see your logic of using "no" slippage. I look forward to hearing what other members are using as well.
     
  20. ACS

    ACS Well-Known Member

    Having to manually edit the trade log is one of my biggest peeves with OV. You can import from IB but only the next day from the statement not from TWS on the day of the trade. I really wish they would work on that. I try to exit my trades with GTC limit orders as much as possible so I know what the price will be.
     

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