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The ROCK Trading SystemPart 4 - M3 Entry and February 2012 Expiration Example
Brought to you bySMB Training
A World Leader in Options Education
Created and taught by John Locke
Locke in Your Success, LLC.
“Know what you want, make it happen!”
President of Locke In Your Success, LLC
Options Trading Mentor
February 2012 ExpirationRisk Management and Profit Targets
Planned Capital - $50,000
Profit Target - $10,000
Max Loss - $10,000
Profit Target may be adjusted up or down as trade progresses
Max Loss may be adjusted down but will not be increased
January 18 – 30 DTERUT at 777Entry Test
Delta is suggesting a high IV entry
Modified ROCK or M3 Entry?
Looks like an M3 Entry
M3 Analyze Graph
January 25(7 days) – 23 DTERUT at 794, up 17 points
Buy 10 – 750/760 Call Verticals
February 1(7days) – 16 DTERUT at 806, up 12 points
Sell M3 Position
Do an entry test to be sure we can enter a normal ROCK position
Switch to Normal ROCK EntryBuy 10 790 put butterflies Buy 7 830 call butterflies
Delta at 810 is -178Looks Good!
February 3 (2 days) – 14 DTERUT at 828, up 22 points
This is why we are having trouble!
ROCK Configuration Upside GuidelinesScaling In
When Delta exceeds-250
Add call butterflies at 40 points over the butterflies with the lowest short strikes until Delta comes down to around -175 or until there are 10 butterflies at that strike
Once 10 there are 10 butterflies at 40 points over the lowest short strikes, start adding in call butterflies at 60 points over the butterflies with the lowest short strikes until Delta comes down to around -175 or there are 10 butterflies at that strike
When there are 10 butterflies on each of all 3 strikes, the trade is now fully scaled in
Add 3 - 830 butterfliesAdd 8 - 850 butterfliesBring trade Delta down under -200
February 8 (5 days later) – 9 DTEWe get an increase in negative Delta from both a continued up move and the passage of time
Add in last 2 850 butterflies We are now fully scaled in to ROCK positioning
February 10 (2 days) – 7 DTERUT drops to 814, 17 points
Downside Adjustments in Rock Configuration (when greater than 2/3 entered)
When the position is fully entered and maximum positive Delta will be increased to + 250 intraday and +150 end of day
When maximum Delta has been exceeded
Remove upper butterflies until positive Delta is about 100
Once all upper butterflies are removed, follow 2/3 downside rules
Like the Bearish Butterfly, we scale down the position when whipsawed to the downside after fully scaled in
February 14 (4 days later) – 3 DTERUT price is up, yet we have a positive Delta issue due to time passage
Continuing to reduce size
February 15 (next day) – 2 DTEBoth time passage and a $4 price drop contribute to a Delta increase