Trading M3, Road Trip, etc. with ONE

Discussion in 'OptionNET Explorer' started by TheSpeculator152, Jan 16, 2016.

  1. TheSpeculator152

    TheSpeculator152 Well-Known Member

    Does any of you trade the M3 with ONE stable or latest beta?
    I am interested in knowing if the latest release of ONE is good enough in terms of an accurate T+0 line to replace OV as the primary analysis software when trading income trades focusing on a stable T+0 line (M3, Road Trip Trade, etc.).
    Last edited: Jan 16, 2016
    Robert L. and Niels Henrik Olsen like this.
  2. Andrei

    Andrei Well-Known Member

    I think the general consensus is that ONE stable is not going to give you reliable T+0 calculations. The new beta is suppose to provide a much better approximation of T+0. It will never be exactly the same as OV, but this is not the point As long as they provide reasonable and stable approximations of T+0, either one should work. One thing many of us learned during the recent OV debacle is that OV is not the only tool we can use. Actually, John Locke seems to be more open to other tools as long as they are used consistently. I took all my Feb M3s off for a loss, given the volatility, I didn't think they were going to withstand the moves. I am planning to go back to M3 in March. I have several RT trades working and now use both OV and TOS smile. Actually, in my opinion (not really tested) TOS is better for this kind of trades.

    I am hoping that ONE will provide a good alternative to OV. Once they finalize their "early adopter" pricing, hopefully next week, I will give it a try.
    Niels Henrik Olsen and dacamon like this.
  3. Balazs

    Balazs Guest

    I solely use ONE. I believe for the newest beta version, the T+0 line is pretty acurate as well for the BB, M3 as the RT. Now as for delta values, I don't know for sure, but if you substract between 40-50 delta from your ONE position delta, you will be pretty close to OV numbers. This is valid for the M3 and makes putting on the position and adjusting it accoring to JL guidelines pretty reliable. For the BB I have not figured out the exact delta differences, but perhaps it is the same. I will be chcking that soon. I use IB and also have the data feed via TWS, this might be important regarding the delta values.
  4. Andrei

    Andrei Well-Known Member

    Thanks Balazc,
    I am not clear about your delta adjustment. Is this for the existing version of ONE or the new beta? I do not see how T+0 would be accurate if you have to make such big adjustment to Deltas. Also in my experience delta are close among various model when the underlying position is close to ATM. As the market moves up or down different models react differently.
    I am using TOS for data feed. Does anybody tested TOS vs IB feeds?
  5. Balazs

    Balazs Guest

    Hi andrei,

    I am responding from my phone so please forgive me for the spelling errors.

    I personally do not know why this is how it works for me. I double the size (APM) en if the start position in OV is 0 delta, I keep it in ONE between 40 and 50. That way the t-0 line resembles what is more "known" to us to be correct. Perhaps the downside skew is not that precise in ONE. What I came to discover is if the market makes a sharp move down and I was positive delta at the end of day before that, with a t+0 line that clearly went under break even the previous day, the position would still be profitable after that sharp move down... On the upside on the other hand it tends to overestimate the value of the position. If the T+0 line shows a certain value, in many cases if, the market does move up, the position will actually have less value than the T+0 line indicated. For these reasons, I think, the higher delta compared to OV, will work out fine. I use one beta version. Imprtant to point out is, that if you dont double size the M3, the additional delta needs to be cut in half of course. In that case I use 20-25 more delta.

    My delta limits are for the double sized M3:
    Downside 100-130.
    Upside in the tent, 130-150, outside tent: 90-120
    PT: 20% untill 12 DTE. After that 10% (this is just a subjective number, you can play around with this of course).
    With these settings I backtested the double sized M3 for the past 5 years. On average you fairly easy make the 60%+ annual return without having to take position ever closer than 7 DTE. 2012 and 2015 being the killer years with 100%+. 2011 and 2014 being average to higher than averag 80-100% and 2013 being the black sheep with still a great return of 60%.
    in the 61 months I have backtested this in ONE, there were 7 losing months of which the lats two (Dec 2015 and jan 2016) and 7 aproximate break even months (less than 2% profit) and a total of 47 profitable months with more than 2% profit.
    The trades were always closed no matter the position was in a loss at 7DTE.

    Let me know if you have any questions.
    Last edited by a moderator: Jan 17, 2016
    Chaitanya, dacamon and Andrei like this.
  6. dacamon

    dacamon Member

    Thanks for such a great info. I will backtest it as well as in ONE per your recommended adjustments. Are you using the latest released version?

    Btw, How are your positions doing in this crazy market?

    Sent from my iPhone using Tapatalk
  7. Balazs

    Balazs Guest

    What i gave you in my previous post is a general overview of some basics, how I use ONE. However, i do take a look at technical analysis and will have a market bias. for example, if I see the market dropping back to the 200MA, I might accept a higher positive delta as I do think the market will bounce. So the delta values I gave you are guidelines I use, they are not hard numbers. You can play around with them. The point is that they are about 40 higher in both directions, than OV. Also, I time the entry. I enter always when the market makes two consecutive rising days , where on both days the IV has declined.

    I am using the latest beta and my positions in this market are actually not that bad actually, with the exeption of the Jan M3. My Feb M3 and feb BB are ding great, both in profit, although I had to roll them twice. The Jan M3 for me was a loss.

    dacamon likes this.
  8. Trader G

    Trader G Well-Known Member

    Hi Balazs,
    Thanks for the info, just curious what your avg loss was and your worst drawdown during a trade if you kept track of it. I didn't know if by doubling the M3 you essentially doubled the returns as well as drawdown/losses.

  9. Balazs

    Balazs Guest

    Hi G,

    Great question and I have to admit, that is something I did not keep track of drawdown statistics, but will try to look at it this week. What I do know is, that if you double size, your drawdown will increase aswell. If the market conditions are not favourable, you also will have a drawdown pretty quickly, but that is the same for the standard M3. For example, in 2013 the first half to the year, basically every month the position was in a loss for almost the entire life of the trade. With double sized M3 (50K pc), the drawdowns fluctuated between 1000 and 4000 USD. Usually at the end of the trade did the position come back into profit. But other than that, the trade is very resilliant. Yes, sometimes the trade has a drawdown, occasianlly a nice profit will go into a loss on a single move (2011), but in general, the drawdowns are still minor and very managable. I hope that anwsered your question.

  10. Trader G

    Trader G Well-Known Member

    You did, thanks.
  11. Barbeito

    Barbeito Member

    Hi Balazs,

    Thank you very much for your explanation above.

    I'm not familiar with the double size M3 but I guess this is something where you double your size relative to a standard M3 unit and manage it in such a way that you keep you planned capital at 50k max (one M3 unit). If I am correct in my assumption, your performance compares to a standard M3 performance dividing it by 2. So, if your back test performs at +60%, a standard M3 with the same delta, profit target and max loss, will perform at +30% (more or less, of course). I am correct on this?

    A few other questions that I have regarding your back test are:
    • Do you open the position around 56 DTE?
    • I'm assuming that the delta figures mentioned above are for OV and on that you apply the additional delta to use it in ONE. Is this correct? So if I try to replicate your back test in OV, I just use the delta guidelines stated above?
    Thanks very much again for sharing this information.
  12. Balazs

    Balazs Guest

    Hi Barbelto,

    On your first question: Yes I use 2 calls and have a starting position of 20 butterflies instead of 10. This number changes based on IV. If IV is very high, generally I can take in more flies than 20, or I can widen the spreads (60 points). After that I indeed manage it in a way, that I stay within the 50K capital requirement on a Reg T account.

    The second question, if the performance is double that of a regular M3, the anwser is that it is not a linear correlation. The reason for this is, that in a standard M3, you usually move the inner shorts only and only in rare occasions do you touch the outer longs. With the double sized M3, if you move the inner shorts, almost always it will require a movement of one side of the outer longs and sometimes both to stay within Capital req. And, by doing so, you usually make the width of the the tent smaller in a different pace than with a standard M3. Another difference is that with a standard M3, you build up your capital requirement gradually, with the same amount of butterflies (by using spreads as adjustments). With the double sized M3, you have a larger Theta and a larger tent, which is great if your position gains in the beginning of the trade, but if then the market suddenly moves up, which requires a roll up, you can only do that buy selling of some butterflies to stay within capital requirements. This achieves two things: 1.) You have lessened or kept your risk the same at 50 K, but your tent and your theta has decreased because now you dont have 20 but maybe only 15 butterflies on. With this, your 1 to 2 ratio is not valid any longer. What is the advantage though is, that if the standard M3 gains money in the beginning, the double sized M3 will do this twice as fast, untill the point you need to scale down (becaue of rolls or spreads!). However, at that moment you have already locked in a twice as large profit as with the standard M3.

    I have tested opening the M3 at 56DTE, but results can be as volatile as with shorter DTE. I stuck with keeping on 1 position only in backtesting! So, I am fully invested in one double sized M3. Because in the majority of aoccasions these positions were closed at 7DTE, that is also the day I open the new M3. That means I have between 35 to 42DTE. When the DTE is in the lower thirties, I dont have enought time anymore to time the entry, so I just enter that day. That was the way I performed the backtest. I can tell you that the results are as managable and as random as when I would open the position 56DTE. Only in a couple of occasions was the 56 DTE more beneficial, but again then I would had to keep 100K in capital instead of 50K, which would half size my returns immediately.

    Your last question regarding OV. You are almost correct. I do start with the standard John Locke guidelines. I correct them with the delta's to use them in ONE. However, in the trade as I mentioned in a previous post, I will have a market bias. Which will result in sometimes not rolling down the position even though we have exceeded the 10points below our short strikes. In this case I will allow a maximum of 130 delta in ONE if my position is truly double sized. That is 50 delta in OV and adding 2 times 25 for ONE correction plus some more risk which is a personal preferance (the additional 30 delta). Keep in mind though, that my additional positive delta bias will bite me, sometimes even hard when close to experation the market moves sharply down. I just keep the stance, that this is not very common. If you look back at the past 13 years, most months the indexes went up and when sharp moves down occured, they were actually very beneficial to the M3, as long as you were not already in a loss and around your short strike with less than 10DTE.. and that situation does indeed occur only a few times with this setup.

    Also, with ONE or due to the double size (i dont know which is more important), I will have a T+0 line that sometimes has severe gamma problems. So, my delta's might be fine, I will still adjust due to the gamma, so my line flattens out. This is more valid on the upside. But as a guidline I will not allow more delta than 75-100 outside the tent and 100 to 130 inside the tent depending on gamma trend.

    I hope this helped.

    Last edited by a moderator: Jan 25, 2016
  13. TheSpeculator152

    TheSpeculator152 Well-Known Member

    @Belazs, thanks for sharing your perspectives. Will study in detail. Thanks again!
  14. Barbeito

    Barbeito Member

    Hi Belazs,

    The information provided is very clear. Thanks very much again for sharing.

    Chaitanya likes this.
  15. Tps

    Tps Guest

    I have a major delta discrepancy between TOS and ONE that I was hoping people could comment on. I have on an M3ish type of trade in the June 3rd weeklies consisting of the following: 7 - 1160/1120/1080 put flies and 3 - 1080 calls.

    ONE shows me having -11 deltas while TOS shows me having +102 deltas. The difference was even wider earlier today. Does anyone have any advice/input. Tough to have confidence in your position with this much variance between software.

    I have TOS set to vol smile and ONE set using surface vol and sync. It doesn't matter which setting you use, the two softwares present meaningfully different deltas.

    Last edited by a moderator: May 25, 2016
  16. Gabor Maly

    Gabor Maly Well-Known Member

    In TOS are you on "Single Symbol" vs Portfolio, if on Portfolio could there be other underlyings clicked? For me TOS and OV are having a very minor disconnect not in the magnitude you are describing, so TOS seems to be OK.
  17. Tps

    Tps Guest

    single symbol. In fact, currently this is the only position i have on in this account. If you model it out you will see what I am talking about. Currently ONE is show -34 deltas and TOS is showing +102 deltas. I guess the reason i bring it up, is not only for guidance as far as which one to trust, but as caution for others using both software and trading close to expiration options. Take 3 minutes and model it so you can see what i am talking about.
  18. Gabor Maly

    Gabor Maly Well-Known Member

    OK got it. TOS JUN 3 weekly put deltas seem to be out of whack......your put butterfly in OV will come to -286 delta for the 7 lot vs -159 in TOS. Total position delta with 3 calls (call deltas seem to be fine in TOS) in OV is +4 delta as we speak. This discrepancy does not exist for JUL15 expiration for example.
  19. Tps

    Tps Guest

    Thanks Gabor - that is very helpful.

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