Incremental Adjustability and Capital Control

with Small M3, Bearish Butterfly and ROCK Positions


Brought to you by SMB 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!”
 1.
Disclaimer
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
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Corporation (SIPC).
 8. No relevant positions.
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.
This information may be applied to the M3,
Bearish Butterfly, ROCK and/or M21
Checkmate Systems as the situation dictates

1. New FINRA margin regulations which allow uneven spreads

without adding artificial margin to a reg-t account (check
with your broker to be sure they allow this. If they do not,
move to one that does!)

 Allows us to trade like we can with PM accounts

 Allows us to more easily control the capital in our positions,

creates much more flexibility with adjustments and allows us to
adjust and exit more “safely”

 Gives us a greater ability to perform incremental

adjustments on very small Bearish Butterfly, ROCK, M3 and
M-21 Checkmate trades
M3 Configuration
Normal RegT Entry
 M3 Configuration
Using Put Verticals in Place of Call Verticals
 M3 Configuration
Using Put Verticals in Place of Call Verticals
Delta is too high
Sell 5 910/920 Put Verticals
New Position
Sell 5 910/920 Call Verticals
New Postion
Delta Drastically Exceeded
Butterfly Roll??
Instead of going through risk of buying and then
selling butterflies, buying a condor is much safer
We finish by reorganizing upper ½ of the position, in
this case a single butterfly order does the trick
New Position
 Delta too high
Can be corrected with a condor order
We can also reduce capital by rolling up
the OTM puts with a vertical spread
New Position
Negative Delta too high
New Position
 Near expiration we become less concerned with the market
making a huge up move and can opt for a higher Theta position
New Position
Delta too high
New Position
Morning check day of expiration. Delta is too
high. Best way to correct at this point is to
add ITM calls
 But we do not add those calls and go to EOD
Can exit with a condor order and a single call order
OR………
We could remove catastrophic risk and expire
Can only lose profits and may make
$1000 more
 M3 Configuration
Considerations when using long IWM options
 Using IWM long calls carries a dividend risk

◦ Be aware of dividend dates

◦ If you do not want to get hit sell the calls and…

 Buy IWM stock

 When in stock you get paid dividend

OR

 Correct Delta moving RUT options to a position that is

“close” to existing position
 M3 Configuration
Considerations when using IWM verticals
 Dividend risk tends to be less because you are both long and short options,
although the deeper ITM option will lose more than the closer to, or OTM will make

 Assignment risk

◦ Should not be too big a deal as long as you have enough money in your account
AND you handle it responsibly

◦ Technically, your position is still the same

◦ Good - You just got any time value that was in the option
 Buy back the stock and resell the call immediately

◦ Bad – You get hit with an assignment fee

 If not enough money in the account, brokers margin team may liquidate the short
stock position and you may have Delta exposure that you did not want

◦ Worse - If you decide you are the world’s greatest direction trader and hold the
position with too much Delta risk
M3 Configuration For IWM Phobics
Small Position Management without IWM
This is more susceptible to a hard
fast up move than a normal M3
 Positive Delta too high
Roll back with a condor order
Negative Delta too high
New Position
Negative Delta too high
Correct with condor
New Position
Negative Delta too high
Correct with BWB
New Postion
 Delta too high
No time value in 960 and position too small to make adjustment
that makes sense without IWM so exiting would be suggested
 Bearish Butterfly Configuration
Small Position Management and Capital Reduction
 Current Position
(Comparison to10 lot website position)
 Delta too high
Adding a butterfly is too much of an adjustment
Add an unbalanced condor
 New Position
But what if I want to cut capital?
 Add broken wing call condor and buy
put vertical to correct Delta AND capital
New Position with reduced capital
Buying a call vertical and selling a put vertical will get
our Greeks in line however, it will also increase capital
significantly, so……
We buy a call condor, sell a put condor and
buy a put vertical instead
Greeks are corrected and capital is
over $5k but still reasonable
Buy call vertical and sell put vertical to correct Delta
Buy 2 put verticals to correct margin
 New Position
Capital is creeping up but not too bad, we could reduce it more if we
wanted to especially if we had a larger position
Sell a call vertical and sell a put butterfly
to correct Delta and reduce margin
New Position
This move can be done with a call BWB, buying a call
vertical and either 2 put spreads or a condor order
New position
 Delta is now too positive
Buy put vertical to correct
New Position
This correction can be done by selling a call
condor and selling an iron condor
New Position
This correction can be done by selling a
call condor and selling a put vertical
New Position
Expiration Day!
This should have come off earlier in
the day
 ROCK Configuration
Small Position Management and Capital Reduction
Starting Position
Delta too positive roll butterfly back
per guidelines
New Position
Position got whipsawed and negative
Delta too high. Normally we would….
Buy a call BWB, buy a call vertical and buy a put
vertical to correct Delta and reduce margin
New Position
Sell an unbalanced butterfly
New Position
Sell an iron condor
New Position
Buy put condor and buy call vertical
New Position
Buy call BWB, sell 2 separate call
verticals and sell a put vertical
New Position
Sell call vertical and sell put vertical
New Position
Buy 2 call verticals
New Position
Buy Call Vertical
New Position
Really should exit but can do a Delta
correction with a call vertical
New Position
Locke In Your Success, LLC
 John Locke
 www.lockeinyoursuccess.com

 john@lockeinyoursuccess.com
 Facebook: Locke in Your Success
 Twitter: locke4success
 603-738-1795