How to Identify Changing Market Conditions So You Can Apply The Best Monthly Strategy.
Imagine placing the same trade month-after-month and the market perfectly cooperates with your strategy. The Greeks, price action and volatility all behave to expiration.
Each month you execute the same strategy, you can see it clearly like a movie playing in your mind. As an experienced market neutral trader, you were trained to apply the exact same trade, or set of trades, with the same rule-based adjustment strategies regardless of what’s going on in the market.
That is, after all, the beauty of an options strategy designed to produce monthly income. Execute the same strategy each month and earn a living.
Why You Never Want to Plan for This Perfect Scenario
The concept may feel good, but the reality is market conditions will change and to make a living you need more than one strategy. Without more knowledge, you will feel trapped and frustrated.
Many options traders with promising careers mistakenly trade a good strategy at the wrong time.
Your instincts know this, but you’re a one trick pony. Deep down you know it’s the wrong trade for the current conditions, but you have no choice but to make it because you’re doing this for income. You want to get back in the driver seat but you don’t know what to do.
How to Properly Identify and Adapt to a Changing Market Environment
The M21 program takes income trading to the next level by teaching you multiple ways to analyze the market. We use many of the same technical analysis techniques as directional traders and then add advanced options configurations which result in new trades with improved probabilities for profit which, when executed properly, reduces drawdowns.
To begin feeling good about the right trade each month, our short-term objective together is to develop guidelines and concepts which result in an awareness of when to use the proper strategy. Having the ability to custom design monthly trading plans means your options toolbox has the most effective modifications you could make to allow it to perform well.
Some of the crucial questions you want to master are as follows:
- How will my basic trade react in the expected environment?
- What are the most effective adjustments I could make to allow it to perform well, reduce drawdowns, and make it as easy as possible to manage in the current and expected environment?
- How do I know if the market is not acting as expected and how will that movement change my opinion of the market and my trade?
- Given my new expectations, am I my going to exit the trade restructure the trade or do nothing?
Having full control of these answers, allows you to craft an options trading business that has the potential to earn money regardless of market conditions.
Strategies Included to Make This a Reality
The strength of the M21 system is knowing which positions to utilize and which positions to avoid in the current and expected market environment.
In order to accomplish your long-term options trading goals and to effectively answer the above questions the M 21 guidelines are centered around three unique strategies: the M3, the Bearish Butterfly and The Rock.
Also included is a comprehensive technical analysis section that teaches how to set price targets, pattern recognition, time-frame analysis, cross market analysis, cycle recognition, volume analysis and support and resistance.
The unique M21 technical analysis component will also introduce how to project the future range of prices likely to trade over the next 30 to 60 days. This is important for options traders executing a directional or market neutral strategy including directional vertical spreads and Iron Condors. You could, for example, use this information to know when to avoid trading an Iron Condor because it is not likely to work out or when to avoid trading the vertical spread in a certain direction or how to time your entry into a particular market cycle.
To build yourself a long-term trading career, understanding how to reduce or eliminate low probability trades is just as significant as understanding how to hold a winner.
The M3 Strategy:
How to Earn While You Learn
The M3 trading program is designed to teach you how to properly trade options and move beyond simply following instructions. The goal of the strategy is for you to learn how to interpret the T +0 line, not just at the current price level but across the whole range of prices so you can identify potential risk.
The program then gives you the tools needed to correct that risk. The trade starts out as a very low Gamma position that is extremely resilient to price movement which allows you to be in the market without extreme drawdowns.
Time passage and price movement will eventually create added risk in the position. The M3 strategy provide you with the tools to identify that risk and how to make a variety of adjustments so that you can modify the risk.
The program thoroughly explains what conditions each adjustments will correct and how to properly manage that position. This allows you to understand how positions react to price movement, volatility changes and the passage of time.
Positive Theta, flat Delta and low Gamma positions allow you to be in a relatively low risk trade while learning how to manage the trade, which creates a safer learning environment to improve.
Why the M3 Is More Than a Strategy
Options traders who rigidly follow rules develop a false sense of confidence when the market perfectly unfolds. The M3 is a system for learning how to trade, which provides guidelines and concepts of how, why and when to apply them.
Most trading strategies are out of the box and force traders to follow a set of instructions without understanding what they’re doing. In my opinion this is dangerous.
In my experience, any system may do well in specific market conditions, but blindly following the rules without knowing the spirit behind them, leave you exposed when something that is not explained in the system, occurs. Eventually market conditions will render even the best system ineffective if you only know how to follow directions without understanding how to trade. This can be costly if you don’t know how to adapt to the changing market and what adjustments to make.
As a result, when the strategy doesn’t perfectly match the market you will end up scrambling to find a new out-of-the-box system and start all over again from scratch. Obviously this costs you more time and money.
Mistaking your ability to follow directions for your ability to trade is setting yourself up for ultimate failure. Our goal together is to develop an awareness of market changes while you are learning to improve your skills.
The M3 is the first step in making that happen. We begin with the goal of creating an environment where you can learn how changes in market affect the way a given complex options position reacts and then show you how to change the position to make it react more favorably for the given situation. Truly understanding the way your position will react is much more than simply understanding what the Delta, Theta, Vega and Gamma of your position is.
Goals of the M3
The M3 teaches you how to trade a market neutral position that is very resilient to price movement for the duration of the trade. It is designed to lose as little money as possible while you learn how to monitor, identify and control price movement risk in your position so that you can make proper adjustments to keep your static and dynamic Greeks in line.
This allows you to be in the market learning how to properly trade a live position and adapt the trade without the excessive risk of most other strategies.
The M3 is the perfect building block strategy for those who cannot watch the market all day. I would go so far as to say it’s an excellent trade to learn how to become a better options trader in general.
The strategy was specifically designed around the concept of teaching traders to properly manage risk in a complex options position which as a result you improve your skills of position management.
Clearly the M3 trade is a learning tool as well as a strategy to earn money.
The Bearish Butterfly
The second strategy takes the advantages of directional trading and combines them with the benefits of high probability income trading which results in a high probability, high-yield, positive Theta trading system.
Reviewing our core goal of the M21 system, improve awareness of changing market conditions and possess the strategies in our toolbox to take advantage of the new scenario unfolding.
The Bearish Butterfly produces its highest returns in sideways markets when most directional strategies perform poorly. It also performs well in volatile, choppy, down trending markets when most income trades tend to accumulate large losses. And when executed properly, it can handle most up trending markets as well.
As your skills develop, I believe you’ll find the strategy to be hands-down the most powerful market neutral strategy in your arsenal. This is because the system is designed to handle as large a market move as any market neutral income trade I have ever seen with a potential yield that is at least three times that of your average “high probability” market neutral trade, which makes this a remarkable opportunity to learn.
How to Execute the Bearish Butterfly
Directional and trend following traders tend to take repeated losses in sideways markets. Most common strategies such as buying stock, covered calls, naked puts and bull verticals tend to perform very poorly in down trending markets. Most market neutral strategies take major losses and extremely volatile and quick down trending markets.
The Bearish Butterfly is a trading system specifically designed to improve your returns as your skill development advances. Your ability to interact with increasing market scenarios will increase the amount of opportunities for you to allocate money.
It’s very similar to never seeing a white Volkswagen Bug but suddenly noticing that they are everywhere after you bought one yourself. Your awareness of your surroundings improves dramatically as you learn more.
We begin the trade by establishing a profit range for income, while simultaneously planning three separate entries. Scaling into a position behind the market price as the asset rises get you better prices for the expected move in the opposite direction. The benefit of this is that you enter the position at a very low price and increase your size as the market moves against you. When the market behaves as it normally does, a small retracement increases the value of the position very quickly.
Finishing a Bearish Butterfly Trade
The Bearish Butterfly Delta and Theta guidelines identify how to deal with situations when the market is not acting normally and continues to rise further than
expected. The guidelines are used to adapt the position to be closer to the market price so that it can profit in a wider variety of conditions.
The term we use for learning these trade adjustments is also known as “rolling the butterfly”. Students of the Bearish Butterfly system will never be caught like a deer in headlights because these planned adjustments are a part of the strategy and not simply a last-minute emotional decision. This puts you in control of the outcome.
Adjusting the guidelines as the position gets closer to expiration allows us to maximize Theta and exit the trade at a reasonable profit to avoid trading close to expiration when it is more risky to be in a positive Theta position.
The Bearish Butterfly with its unique entry that scales into the position and adjustment strategy that takes advantage of normal back and forth market movement, combined with a slight directional bias is designed to take advantage of the large price swings in general downward direction associated with a bearish market condition.
A key benefit of the trade is that it’s very systematic, leaving very little to the imagination. This is one of the reasons for the consistent profitability of this trade when it’s followed to the letter.
What if there was a simple way, without looking at charts or guessing direction, to determine which position to enter?
The Rock trade uses a simple and effective entry test that helps determine whether the market makers are expecting a large unpredictable price movement or slower, more predictable price movements. We intentionally use this test trade to our advantage.
We use the results of our test to determine whether we should enter the market in an aggressive high-yield position where we can go for maximum profits, or if we should apply a more protective low risk position to avert large drawdowns large potential losses.
In other words, we are working towards mastery at this stage of multiple market conditions and the strategies necessary to seize the opportunity.
The entry test lets us greatly improve our chances to enter in the most favorable condition so we can maximize gain and minimize risk.
The Rock Teaches You How to Adapt If Market Conditions Change
The Rock strategy uses seven different configurations. Each configuration is designed for specific purpose and will be applied as market conditions change during the trade. Our unique test entry signals how the market makers are pricing options and we use that information to determine the best way to enter the market.
If we enter a trade in a high-yield position and the market moves down excessively, the Rock trade adjustments sequence gradually shifts the trade from aggressive high-yield position to a defense a position that can much better handle large price movements and improve your chances of winning the trade.
This is perfectly keeping in line with our core objective, to be an options trader who adapts and thrives during changing market conditions.
The opposite is also true. If the trade is entered in a protective position and the market transitions into an upward grind, the Rock trades adjustment sequence gradually shifts the trade into a more aggressive high Theta position to maximize gains.
The bigger benefit of the Rock trade is that it teaches you how to dynamically change your position configuration from a position that is extremely resilient to large price movements to one that is extremely aggressive and maximizes profit and a flat market.
When you reach this this stage of your skill development in the M 21 process, the Rock becomes a chameleon which results in multiple opportunities to increase your returns.
The Rock Trade Adjustment and the Greeks
Typically high Theta comes with high Gamma. A high Theta position will theoretically gain value daily assuming the price doesn’t move a lot, because the high Theta position comes with high negative Gamma. This means that even if you are zero Delta at the current price, the Delta is going to move against you quickly when the price moves in either direction resulting in large losses with significant price movements.
This is great when the market is not moving very much but very bad when the market is moving a lot. If you enter a high Gamma position when the market is volatile, you will lose.
If you enter a high Gamma position when the market is not moving a lot, but then the market conditions change, yet your adjustment strategy is to maintain a high Theta and high Gamma position, you will also lose.
To avoid this, the seven strategies of the Rock, show ways of adapting or adjusting the position to one that can deal with large price movements. The Rock trade adjustment strategy is designed to swap your high Theta Gamma position into a low Gamma position as the price goes down and the market is likely to get more volatile.
On the flip-side if you’re always in the low Theta Gamma position, the profits will always be low and it is difficult to take advantage of the gentler up trending or flat market conditions associated with low volatility. The Rock trade, if entered as a low Theta, low Gamma trade will transform into a high Theta high negative Gamma trade when the market moves up and is likely to become less volatile, thereby allowing much higher profits when the conditions are right.
The seven different configurations presented by the Rock trading strategy are designed for a specific purpose and will be utilized as market conditions change during the trade.
At this stage in your options trading mastery and M 21 skill development, there will not be many market conditions for which you will not have an answer.
The M 21 Trading System
One of the many benefits of the program is the amount of, and depth of, the illustrated trade examples. A unique feature of the training is the emphasis placed on learning how to trade with snapshots reviewing each stage of the trade.
You see the trades from start to finish, with multiple detailed analysis from John.
The M21 is a new positive Theta trading system that employs multiple techniques to identify to identify market conditions so that you can utilize the M3, the Rock and Bearish Butterfly to exploit those conditions.
The strategies are also available to purchase individually, for this week only, they are being offered as a complete trading system. If you would like to discuss the M3, the Rock, Bearish Butterfly or M21 video products separately please call the office at (646) 560-5953.
The complete M21 program takes the finest concepts from market neutral “income trading” and combines them with the best aspects of directional trading to create a customized trading plan that is designed for each month’s unique market environment.
Enrollment in the Complete M21 Video Training Program Includes:
- The M3 Strategy
- The Rock Strategy
- The Bearish Butterfly Strategy
- The M21 System Video Series (which includes Johns unique technical analysis training)
- Over 18 hours of training video available online.
- Over 1,300+ pages of instruction and detailed examples.
About John Locke:
- President of Locke in Your Success, LLC
- Trading Performance Coach and Mentor
- Educator for SMB Training
- Developer of the M3, Bearish Butterfly, ROCK and M21 Trading Systems
- Professional Trader on SMB Options Desk
PS: Be sure to mention if you are an existing Options Tribe Member to receive your membership discount.
If you have questions or would like to inquire about purchasing one of the programs individually please call the office at (646) 560-5953
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