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SMB TRAINING OPTIONS TRAINING PROGRAM Presents:. The M3 Trading System Part 3 August 2011 Market Crash September Expiration. Brought to you by SMB Training A World Leader in Options Education Created and taught by John Locke Locke in Your Success, LLC.

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SMB TRAINING OPTIONS TRAINING PROGRAM Presents:


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    1. SMB TRAINING OPTIONS TRAINING PROGRAM Presents:
    2. The M3 Trading SystemPart 3 August 2011 Market Crash September Expiration 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!”
    3. Disclaimer 1.       SMB TRAINING is NOT a Broker Dealer.  SMB TRAINING engages in trader education and training.  SMB TRAINING offers a number of products and services, both electronically (over the internet through Smbtraining.com) and in person.  Through Smbtraining.com, SMB TRAINING offers the “Virtual Trading Floor”, a community through which independent traders (subscribers), as well as T3 Trading Group, LLC traders, observe a virtual trading floor environment (as described below) for educational purposes.  SMB TRAINING also offers web-based, interactive training courses on demand. 2.       The seminars given by SMB TRAINING are for educational purposes only. This information neither is, nor should be construed, as an offer, or a solicitation of an offer, to buy or sell securities. You shall be fully responsible for any investment decisions you make, and such decisions will be based solely on your evaluation of your financial circumstances, investment objectives, risk tolerance, and liquidity needs. 3.       This material is being provided to you for educational purposes only. No information presented constitutes a recommendation by SMB TRAINING or its affiliates to buy, sell or hold any security, financial product or instrument discussed therein or to engage in any specific investment strategy. The content neither is, nor should be construed as, an offer, or a solicitation of an offer, to buy, sell, or hold any securities. You are fully responsible for any investment decisions you make. Such decisions should be based solely on your evaluation of your financial circumstances, investment objectives, risk tolerance and liquidity needs. 4.       SMB Training and SMB Capital Management, LLC are separate but affiliated companies. 5.       T3 Trading Group, LLC is a Registered SEC Broker-Dealer and Member of the CBOE Stock Exchange (CBSX www.CBOE.com). All trading conducted by contributors on Virtual Trading Floor is done through T3 Trading Group, LLC.6. Any information contained in this presentation is for educational purposes ONLY. Neither Locke In Your Success, LLC, John Locke nor it’s subsidiaries nor any of their respective officers, employees, representatives, agents or independent contractors are, in such capacities, licensed financial advisors, registered investment advisors or registered broker dealers. Neither do they provide investment nor financial advice nor make investment recommendations, nor are they in the business of transacting trades. Nothing in this communication constitutes a solicitation, recommendation, promotion, endorsement or offer (buy or sell) by Locke In Your Success, LLC, or others described above, of any particular security, transaction or investment. 7. The risk of loss in trading securities, options, futures and forex can be substantial. Customers must consider all relevant risk factors, including their own personal financial situation, before trading. Options involve risk and are not suitable for all investors. See the Options Disclosure Document: Characteristics and Risks of Standardized Options. Trading foreign exchange on margin carries a high level of risk, as well as its own unique risk factors. Please read the following risk disclosure before considering the trading of this product: Forex Risk Disclosure. Futures and forex accounts are not protected by the Securities Investor Protection Corporation (SIPC). 8. No relevant positions.
    4. Hypothetical Trades Disclaimer Please note: Hypothetical computer simulated performance results are believed to be accurately presented. However, they are not guaranteed as to accuracy or completeness and are subject to change without any notice. Hypothetical or simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading. Since, also, the trades have not actually been executed; the results may have been under or over compensated for the impact, if any, of certain market factors such as liquidity, slippage and commisions. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any portfolio will, or is likely to achieve profits or losses similar to those shown. All investments and trades carry risks.
    5. September 2011Risk Management and Profit Targets Trade Size: 1 RUT or 10 IWM Calls Butterfly Call Ratio: 10 Butterflies to 1 RUT Call (1/1 ratio) Planned Capital - $50,000 Profit Target - $5,000 Max Loss - $5,000 Reduce Profit Target – in event B/C ratio is altered
    6. In this example…. We are going to sell put verticals rather than buy call verticals to adjust the position. The moves are synthetically the same but have different margin requirements.
    7. Entry Position Price ChartSeptember Expiration 2011
    8. Entry PositionSeptember 2011Expiration
    9. Entry Position for September 2011Expiration on July 22
    10. 5 Days Later – July 27, 2011
    11. July 27, 2011
    12. July 27, 2011
    13. Down side risk could be corrected by selling the call
    14. Down side risk could be corrected buy buying a put
    15. A safer, higher probability approach would be to roll back the butterflies
    16. Buy 780 butterflies Sell 820 butterflies
    17. New PositionUpside still looks great!
    18. 6 Days LaterAugust 2 – 45 DTE
    19. August 2 – 45 DTE
    20. We have the same conditions as before but this time the market is at support and “likely?” to hold.Do we want to hold this position?
    21. NO! We never want to take on excessive risk just because the market is at a support or resistance level! Major support or resistance levels are where the most violent and unpredictable moves commonly occur. Having too much risk under these conditions is likely to force an adjustment to, or exit of, the position in very unfavorable conditions. Trading in unfavorable conditions creates situations where we are likely to get in trouble and take greater than expected losses. We want to avoid putting ourselves in situations that may force us to trade in unfavorable conditions.
    22. Buy 750 ButterfliesSell 780 Butterflies
    23. We have corrected downside risk and taken money out of the trade
    24. 2 Days LaterAugust 4 – 43 DTE
    25. Again Greeks are fine but we have other things to consider
    26. We are pushing the downside AGAIN!
    27. Buy 710 ButterfliesSell 750 Butterflies
    28. This looks fine but…..If we want to do a minor adjustment to help with a sudden reversal we can roll back our long call to a higher Delta
    29. Sell 750 CallBuy 700 Call
    30. New Position
    31. 4 Days LaterAugust 8 – 39 DTE
    32. This day was the largest single day move in the history of RUT (almost 64 points!)
    33. Here we go again!
    34. Buy 650 Butterflies - Sell 710 ButterfliesSell 700 Call - Buy 660 Call
    35. New PositionWe can literally take RUT to 0 doing this…Assuming we are far enough from expiration
    36. After a hard sell off… You always get a hard bounce!
    37. 7 Days Later August 15 - 32 DTE
    38. Positive Vega is a “hidden risk”
    39. Adding a vertical spread puts the Greeks within range but we must verify with the analyze graph
    40. Taking the current market environment into consideration, I would consider this a little too much downside risk.
    41. Let’s try rolling up some of the butterflies
    42. This is much better
    43. 7 Days LaterAugust 22 – 25 DTE
    44. Position Greeks look great!
    45. Analyze graph looks goodWe do nothing
    46. 7 Days Later August 29 – 18 DTE
    47. Vega has gone positive
    48. T+0 “looks” ok but….
    49. Buy 5 650 putsSell 5 670 puts
    50. New Position
    51. Next DayAugust 30 – 17 DTE
    52. Once again we are concerned with Vega risk
    53. Buy 5 670 butterfliesSell 5 650 butterflies
    54. New Position
    55. 8 Days LaterSeptember 7 – 9 DTE
    56. Because we are getting very close to expiration, the position is becoming increasingly sensitive to price movement
    57. We are also at a point where we run into Vega and Theta problems closer and closer to the tent.
    58. Buy 10 670 putsSell 10 680 puts
    59. New Position
    60. 2 Days LaterSeptember 9 – 7 DTE
    61. The market is really swinging around and more frequent adjustments are needed this close to expiration, under these conditions, we should seriously consider exiting the trade.
    62. A very hard down move with an IV increase would be a big problem
    63. Buy 10 650 ButterfliesSell 10 670 Butterflies
    64. This is much better, but if you are still concerned…..
    65. Buy 10 560 Puts
    66. Now the overnight/weekend risk of taking a much larger than planned loss is very remote Corrects Gamma trend and acts as a volatility hedge
    67. 3 Days LaterSeptember 12 – 4 DTE
    68. Profit target is exceeded and trade should be closed since it is 4 DTE but I will bring you into expiration
    69. Position looks great
    70. Next Day – up 18 points September 13 - 3 DTE
    71. Delta is way too highGamma does not trend positive fast enough
    72. Buy 5 680 PutsSell 5 700 Puts(To Remove Upside Risk)
    73. New Position
    74. Next DaySeptember 14 – 2 DTE
    75. Large up move puts position negative Theta and positive Vega
    76. Even though things went against us, we are still OK
    77. If we want to stay in the position, we need to take on a little more risk but not much
    78. A little fine tuning
    79. Probably the best low risk non-directional position we can create at this point
    80. Last day of trading!
    81. Do we want to expire the position?
    82. What a crazy ride!
    83. This example went through… Shift from a low volatility to an extreme high volatility environment Nearly 200 point drop in 11 days Followed by a choppy range of over 80 points Position was checked only 1 time per day Position was never down a significant amount of money Never took excessive risk in either direction This win did not hinge on exact timing of adjustments nor speculating on a market direction!
    84. Summary We entered this trade in a relatively low volatility environment. The market went into dramatic sell off which created a large volatility increase in the beginning of the trade. We kept choosing to roll our butterflies back rather than removing calls or adding puts because removing calls would create excessive upside Gamma trend risk and adding puts would likely create losses if the market did anything except continue to sell off aggressively. We discussed how adding puts would have been a better choice than removing calls. You should be aware however that using puts may have required timing the market somewhat to avoid a loss. When the market finally bottomed and the price reversed violently to the upside, as is to be expected after an aggressive sell off, we chose to roll up ½ of the butterflies to control Vega risk rather than to add vertical spreads as adding verticals did not produce the result we wanted with the t+0 line.
    85. Summary Later on with the continued up move, we rolled the remainder of the position and then were able to utilize verticals to control Vega risk. The market then sold off once again and we rolled back the butterflies to control downside risk. Finally as we took the trade into expiration week and the position became more sensitive to price movement, we utilized puts to help protect our account from an excessive loss because, close to expiration, you can purchase puts to control your risk fairly inexpensively. The price reversed on us once again and we bought an OTM put spread to remove upside risk and protect profits should a continued up move occur.
    86. Summary Finally we sold off our call 2 DTE and repositioned the puts to raise our expiration graph near the current price of RUT and create a low risk way to make more profit should the market cooperate. Notice how we didn’t just look at our Greeks to decide when and how to adjust our position, we also looked at the analyze graph to analyze our Greek trends and we also considered recent price movement, IV levels and DTE to decide the best move to deal with unacceptable risk without taking on excessive risk in the opposite direction.
    87. Up Next in Part 4 Review Trade Set Up Review Trade Entry Go though August 2011 expiration
    88. Locke In Your Success, LLC John Locke www.lockeinyoursuccess.com john@lockeinyoursuccess.com Facebook: Locke in Your Success Twitter: locke4success 603-738-1795