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May I suggest a next guest speaker?

Discussion in 'Support' started by Igor, Jan 15, 2015.

  1. Igor

    Igor New Member

    Hi, is it possible to invite Charles Cottle (Risk Doctor) to hear his opinion on M3 and similar trades?
     
  2. tom

    tom Administrator Staff Member

    Great idea Igor. I'll ask Charles.
     
  3. RayM

    RayM Well-Known Member

    I agree, this would be great if you could make this happen Tom.
     
  4. tom

    tom Administrator Staff Member

    I emailed Charles and he asked for an example of the M3. I sent it to him and he's considering it.
     
  5. tom

    tom Administrator Staff Member

    Charles Cottle, from RiskDoctor.com, said he's too busy to speak at the moment. I gave him a sample M3 for MAR with the 1090/1140/1190 Puts and 1040 DItM call. Charles said this about it:

     
    Last edited: Jan 15, 2015
  6. meyer99

    meyer99 Well-Known Member

    Tom,
    What does it mean: the 1040 VOL is in line with the moment I got the current market values?
     
  7. ACS

    ACS Well-Known Member

    It's impossible to evaluate the M3 without having the overall concept and the adjustment guidelines. Perhaps letting him pick the topic would be more appealing?
     
  8. tom

    tom Administrator Staff Member

    Charles is too busy to speak but took a rain check to speak at a later date. He sent me these two images and said

    John Locke M3
    RUT_Locke3M_RI_011615.JPG

    Broken Wing Slingshot
    RUT_BWB-SS_RI_011615.JPG
     
  9. ACS

    ACS Well-Known Member

    He is surely looking at the M3 as a static trade which it most definitely is not. I'm looking forward to his future appearance.
     
  10. tom

    tom Administrator Staff Member

    Agreed. I don't know when he'll speak, but I'll keep asking :cool:
     
  11. vito

    vito Member

    Hi Tom et al. I am probably missing it and I wonder when the 1140 for March was entered? I tossed in a 1160 bearish butterfly yesterday for the March campaign. Thanks to everyone for sharing and I am looking forward to hearing if and when Mr. Cottle speaks to the group. Also it was very kind that Seth shared his Ten Common Pitfalls of OT last week. How valuable and insightful.
     
  12. John Locke

    John Locke New Member

    Both positions were analyzed on software that does not combine put/call skews and position will not react as T+0 lines show. Try analyzing them on OV with combined skews. If you've traded the M3 you should pick right up on it.

    Assuming I read the position properly, (date 1/16/15 March expiration 21 1080/-40 1140/ 4 1180/ 24 1190 and 2 1190 calls) the slingshot position shown will do very well in a down market but extremely poorly with a normal up or grinding up move. Not only is it significantly negative Delta but the t+0 line will also fall significantly due to the call positioning.

    Essentially the slingshot is synthetically similar to a Modified ROCK position as shown in the ROCK program.

    Of course the magic is in the adjustment plan as well

    We caution about positioning this way in the M3 program if you are going for market neutral in most market conditions.
     
  13. tom

    tom Administrator Staff Member

    Hi Vito. Charles wanted an example of what an M3 was since he wasn't familiar with the trade. I just made up an example...probably not a great one but the idea was close enough to get his opinion.

    As was mentioned earlier, that was just the entry and Charles doesn't know anything about the why or the planned adjustments for the trade.

    One problem I see with the trade Charles put on is the time premium in his calls is significantly higher (since they are near the money) versus the DITM 90 delta calls with about 1/3 of the time premium. There's less time premium eroding the position with the M3.

    Now.. if OptionVue could let us combine two symbols in one trade, we could use shares of IWM to hedge the RUT options and see the combined effect :)
     
  14. Rod M

    Rod M Well-Known Member

    Tom/John: In lieu of using IWM to adjust the upper side of the RUT M3 trade, I have been experimenting with small M3s that would be too small for a normal DIM Call, and instead, adjusting them by using a DIM call and offsetting it with an appropriate short call further up...hence a debit spread instead of an IWM position. This seems to work well, and would like your comments. (DIM= deep in the money).
     
  15. Tim

    Tim Well-Known Member

    I have used IWM DITM calls as a hedge to a smaller (less than 10-lot) M3 many times. It works well although I find that the ratio is different than it might be if you just used RUT. I model it is TOS as a simulated trade with "portfolio, beta weighted" turned on. To account for the difference in delta between OV and TOS I am making a good approximation of deltas in TOS for the M3, based on where we are under the tent and how many DTE left and a detailed study of the comparison.

    Also, let me submit that I have just completed a 4-month experiment. I have been opening a new M3 each week, using the weekly options expiring the furthest out at that point which was usually around 35 to 45 days. These trades have worked, but they are compared to the m3 using monthly expirations. mostly due to the wide B-A spreads in the quotes and difficulty getting good fills. I found it extra hard to exit the trade without giving them up to .20 from mid. My conclusion? It can be done, but I am going to only do m3 using monthly expirations from now on. Better liquidity and being able to open out more than 43 DTE makes a big difference.

    Tim Pierson
     
  16. David Stewart

    David Stewart Well-Known Member

    The way John described the strikes cannot be right, however it is extremely difficult to make out the quantities and whether short or long. Can anyone identify what the actual position is? I can see the M3 clearly but cannot make out the other position no matter how much I squint :)
     
  17. tom

    tom Administrator Staff Member

    Hi David, I just made it up. It was on Jan 14th I think:

    M3 for MAR with the 1090/1140/1190 Puts and 1040 DItM call

    I just wanted to get a close trade to Charles Cottle for his $0.02
     
  18. David Stewart

    David Stewart Well-Known Member

    Hi Tom, I didn't meant the M3 strikes I meant the Cottle actual strikes.
    Ray just sent me something that he reads as all calls: 21 1080 calls/ -47 1140 calls/ 4 1180 calls/ 24 1190 calls
    he gets there by +21 1080 calls/-42 1140 calls/ +21 1190 calls (asymmetrical call butterfly) then -4 1140 calls/ +4 1180 calls (1140/1180 credit spreads)
    then -1 1140 call/ +1 1190 call (1140/1190 call credit spread) then +2 1190 calls.
    However this actually misses TWO additional calls +2 1190 calls
    The two additional 1190 calls gives him the ability to profit at the old high of 1221 that Charles mentions.
    So in conclusion thanks to Ray for pointing out that this was an all call configuration but we need the two extra 1190 calls that gives us a small positive delta to start, a small positive vega to start, some small theta to start, and small positive gamma to start. It does not resemble at all a modified Rock configuration as that uses DOTM calls and Charles uses OTM calls. All in all in my humble opinion it looks like a better starting position than the M3 and bears further study. It's also easier to see the greeks etc, since the DITM call on the M3 as we all know doesn't always calculate correctly on optionvue or tos etc. The Cottle position (as I see it) does not do as well on an immediate down move so maybe we could investigate some kind of a put debit spread or OTM put diagonal/calendar structure to either add on or start off with as well. This is not to criticize the M3 as I know a lot of people swear by it. It is a quite different structure but I am interested in it as for example an alternative to an OTM call butterfly for an upside bias???
     
  19. marat

    marat Well-Known Member

    The way I see it both M3 and slingshot are similar strategies. Both have bearish butterfly component hedged to the upside by excess calls. In Cottle's case butterfly is unbalanced and broken. The nice thing about M3 is that very robust, has been tested extensively, and easier to trade, in particular on RUT. Slingshot will require more skill to manage, but could be interesting option for products other then RUT (e.g. futures), where M3 sometimes does not look quite right because of different vol skews.
     
  20. David Stewart

    David Stewart Well-Known Member

    I'm sorry, but I have no idea what you are talking about?
     

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