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OM Coaching – Selected Strategies

Introduction on OM Strategies

As often mentioned on this site, Options Masters focuses on market neutral income trading strategies, i.e. with time on your side.  The OM Team has thus so far selected 3 major strategies that all OM Community Members should know about and possibly trade together to reach even better performance through diversification:

  1. The Weirdor
  2. The Bearish Butterfly
  3. The M3
  4. Hedged butterflies (e.g. Rhino)

All are based on monthly expirations, with easy adjustments that do not induce a high level of stress.  They are all applied to US indices, in particular the RUT, although it can be traded on its ETF near-equivalent (IWM).

Before going any further, regardless whether you take on a course or not, always keep one thing in mind: PRACTICE MAKES PERFECT

An options trader is a craftsman always working on improving his or her skills, his or her ‘craft’.


The Weirdor Strategy

beautiful weirdor
A beautifully looking Weirdor near profit taking

The Weirdor is a high win rate Iron Condor variation that is somewhat more resilient on the downside than its better known predecessor.  It exhibits a very flat T+0 line and Delta is controlled throughout the trade, making it quite easy to manage with strict guidelines and only a few predetermined Delta adjustments, particularly to protect the downside.

Strong points:

  • Easy to trade, particularly in an up market,
  • Safe enough on the downside if moderate,
  • Stable capital ($20000 per tranche) throughout the position.
  • Monthly cycle allowing to use same capital over without overlap.

Weak points:

  • Fairly sensitive to rapid large (i.e. rare) down moves if first measures do not prove effective enough.
  • Limited return on capital (compared to other strategies) around 3% per month

Strategy Profile

It is thus the ideal candidate to start with as it returns over 3% per month on average 10-11 months each year, with losses around 3% as well.  A beginner – intermediate options trader can therefore generate a ~ 25 % return per year (the track record is closer to 40% / year)

Weirdor Coaching

Weirdor Coaching takes 3 to sometimes 6 months (depending on initial level)  after which it is recommended to keep receiving alerts for up to a year.  Coaching is charged by the hour and the training budget can be estimated at between 2500 and 4000 Euros for the initial year (coaching + alert service).  This amount is to be balanced with the similar expected return for a single Weirdor tranche.

More detail on the Weirdor strategy here.


The Bearish Butterfly

BB Entry
BB Entry

The Bearish Butterfly (BB) is a method that has been developed by John Locke (lockeinyoursuccess.com).  For any seasoned Butterfly trader, the BB comes as a sensible hands-on approach, that has proven to perform very well both in backtests and actual track records.

It starts with a displaced Butterfly slightly below the money, with strict adjustment guidelines adding and moving Butterflies around.  It remains a fairly easy self-contained trade as it does not develop into a complex combination.

Planned capital is $50k (in the original John Locke version) but it is recommended to start with $100k to allow for overlaps and trade each monthly expiration that way.  It is however possible to start with smaller positions.

The BB is overall a great unhedged Butterfly strategy, leading to the M3 and other variants (Rhino, Kevlar, Rock etc.) which are meant to give the trader a greater piece of mind with a flat T+0 line (i.e. flatter Delta, less sensitivity to Vega).

Strong points:

  • Easy to trade, in virtually all markets (except for fast runaway rallies),
  • Safe on the downside if moderate,
  • Stable capital ($50000 per tranche) throughout the position.  Smaller positions are possible
  • Good performance (~5% per month)

Weak points:

  • Fairly sensitive to rapid large (i.e. rare) up moves.
  • Slightly more complicated than the Weirdor
  • Needs more attention than the Weirdor

Strategy Profile

A tad more advanced than the Weirdor, it is the best way to then diversify the portfolio with Butterflies.  The BB is a great Butterfly strategy, often returning excellent performance (it can exceed 100% per year).  The strategy has been tested extensively and many traders will confirm it.  That said, as part of the normal learning process, many will also move on to an hedged butterfly technique (see below) for better piece of mind.  The BB may indeed require more attention as it is not naturally constructed to protect its Delta.  That said, the quasi mechanical adjustments work perfectly and the BB will deliver if its guidelines are followed to the letter.


The M3 Strategy

M3 Entry
Typical M3 Entry (note the flat T+0 line)

The M3 is a sound monthly strategy that is part of the “hedged butterfly” family like the Rhino or the Kevlar.  The M3 was also originally designed by John Locke as a hedged variation on the Bearish Butterfly.  Its rationale is to keep the T+0 line as flat as possible (both Delta and Gamma).

It is a slightly more advanced trade as it may turn Vega positive on the up side.

The dedicated M3 page is being edited to cover all sorts of hedged butterflies (as well as BWB)

TO BE CONTINUED SHORTLY


Trading Weeklies

Weeklies are taught on an ad-hoc basis until a formal course is ready (mid 2016)

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