Transcript Adjustments




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 The purpose of this Power Point is to be a quick reference summary for the M3. It is NOT a rule sheet.  Entry: 60-30 DTE  Entry Positioning: 15 – 35 points below current price  Planned Capital: 5000 -8750 per IWM call depending on butterfly call ratio  Profit target: 10% planned capital. Lower target if number of butterflies is reduced.  Preferred Delta Range: + 50 to (-) 100

 Buy ITM call verticals/sell OTM put verticals as an upside adjustment to:  Increase (+) Delta  Increase (-) Vega and project (-) Vega further forward on the T+0 line  Increase (+) Theta and project (+) Theta further forward on the T+0 line  Be cautious of adding negative Vega to your position in very low volatility environments especially when approaching major long term resistance levels

 Buy deep ITM calls or stock as an upside adjustment to:  Increase (+) Delta  Increase (+) Gamma Trend

 Roll butterflies up as an upside adjustment to:  Increase (-) Vega  Increase (+) Theta  Increase (-) Delta  To improve the profit potential in the expiration graph at a higher price level  Consider rolling up if market spends a few days more than 10 points past the upper long strike of the butterfly

 Reduce butterfly/call ratio as an upside adjustment to:  Increase (+) Delta  Increase (+) Gamma Trend  Reduce margin  You will likely need to reduce your profit target when you reduce the number of butterflies in the position

 Buy OTM call verticals/Sell ITM put verticals for an upside adjustment to:  Reduce or eliminate upside risk  Increase (+) Delta  This adjustment is typically used a protective move for persistent up moves closer to expiration  This adjustment, in addition to the above, will increase downside risk, reduce Theta and reduce the likelihood of gaining additional profits in the trade

 Reposition calls as an upside or downside adjustment to:  Reduce margin  Reduce downside risk  Make small alterations to Delta, Gamma, Vega and Theta

 Buy OTM calls as an upside adjustment to:  Increase (+) Delta  Increase (+) Gamma Trend  This adjustment is to be used ONLY as a TEMPORARY measure when there is a COMPELLING reason to expect a large move  Once that move has occurred or the compelling reason is gone, the call should be removed and the position should be corrected as needed with one of the previously listed techniques

 Roll butterflies back as a downside adjustment to:  Reduce downside risk  Reduce (-) Gamma  Reduce (+) Delta  In some cases, this move may actually increase (+) Delta but the reduction of Gamma and improvement in downside Gamma trend typically protects very well against large down moves  This adjustment may also be used as an upside adjustment to increase (+) Gamma trend to the upside

 Make butterflies into a condor as a downside adjustment to:  Increase (-) Delta and give yourself more downside room when closer to expiration in flat market conditions  Be aware that this will upside risk


your upside (+) Gamma trend, thereby increasing your

 Buy OTM puts as a downside adjustment to:  Hedge downside IV risk  Increase (-) Delta  Increase (+) Gamma to the downside  Increase (+) Gamma trend to the downside  Used mainly closer to expiration

 Increase BF/call ratio as a downside adjustment to:  Increase (-) Delta particularly when the position is over hedged to the upside and rolling back the butterflies does not accomplish the result you want  In general, we do not recommend removing upside hedging in the M3 but in this specific situation the hedging can be reduced as an alternative to adding butterflies

 Profit target or maximum acceptable loss is hit/exceeded  ANY TIME you are in danger of significantly exceeding your acceptable loss numbers with a 30 point overnight market gap AND the situation can not be corrected  Any time it is not likely that you will gain any more profit from the position

      John Locke

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