Many thanks sharing with members of community various nuances of your trades. Watching your January presentation on JL site was very inspirational for me .
It really motivated me to stop looking for next best thing and put most of my time and efforts in learning M3.
The more videos I watch and the more back trading I do, I appreciate more and more the depth of your knowledge about this trade.
I plan to implement your system for monitoring BF prices into my daily routine .
As you have been monitoring BF prices daily for quite some time, I would like to ask you a few questions:
1) By keeping track of 10 point interval strikes, do you find any significant importance where the current market trades and mid prices of butterflies ? For example if there is any material difference in the price of 1060P/1010P/960P butterfly with RUT at 1031 , 1035 and 1039 ? Do you factor this in your analysis of daily records of butterfly prices ?
2) Do you find any pattern when at certain days of the week or days to expiration butterfly prices gain or loose value more than the model predicts?
3) Do you keep daily records of volatility skew together with butterfly prices ?
3. Yes, I do monitor volatility skew together with butterfly prices. The most important thing is to watch where the legs of the butterflies are on the IV skew. If they are in the wrong places, then that's a cause for adjustment.
Thanks for sharing Kevin. This is big and something I asked OV for recently. Extremely happy to see that they included this.
After looking at IV changes for a period of time, you will develop an intuitive sense of how they change with time and underlying movement. I find that developing a deep understanding of the anatomy of a butterfly trade is more beneficial than learning multiple styles of trading butterflies. Because once you have that intuitive feel, you'll naturally come up with sensible approach to trading the position.
Kevin, After watching your interview with John Locke , I am under impression that you manage your whole monthly campaign as one large position regardless of the fact that you open different tranches at different times. Please correct me if I am wrong.
I watched many episodes of CD Trading Group 2 where Tom Hughes showed his live M3 trades in progression. His method is to enter every 2 weeks and maintain each campaign individually even for same monthly expiration cycles . I also remember that other M3 trader Vincent Lim from Singapore wrote on old M3 thread that he uses similar method as Tom Hughes.
After thinking about this, I suspect that you with your deep knowledge of this trade no longer look at your positions as a base M3 group but more look at individual components and have pretty good idea how each guy in your orchestra performs (depending on its position inside the tent or outside from greeks point of view ) if market goes up, down, volatility drops, rises , etc .
Would love to hear your opinion about pros and cons of yours and Tom's method.
One common example - frequently I'll end up with a position with butterflies at 3 different strikes. If the market runs up (like now), quite often, although the greeks of the position as a whole is still healthy, but the lowest butterfly is so far away that it has become a drag to the position - ie negative theta and positive vega. It has turned into a dead wood. But if I only look at my position as as whole, such dead wood continues to be hidden.
Kevin, Many thanks for your excellent as usual explanation. For my personal development I will keep daily track of greek changes for all my individual components. After you showed how to download this data from OV and process with pivot tables, it is very easy to do.
One more point I would like to clarify. Do I understand you correctly that in the end campaign getting closer to 21 DTE you are less likely reposition your whole "dead wood" butterflies but rather keep only the part of it which still has its purpose.
The reason for asking that question, I have a separate thread on CD where I post updates about my first live M3 Mar 16 trade.
Yesterday my vega turned positive and RUT was trading 25 points above my right long leg. With 17 DTE I decided not to roll up as I didn't like the prices of butterflies and T+0 line after possible adjustments. I decided to morph my position and to keep only credit spread 1000P/950P in order to continue getting a little bit more theta and exit completely by next Monday.
Is there a certain number of DTE when you stop maintaining your full position of 200 butterflies but simply start weeding out.
I assume it is a big difference for such situation with 45 DTE and 17 DTE . Thanks in advance.