1. The RUT Bearish Butterfly
SMB Training
OPTIONS TRAINING PROGRAM
A Somewhat Average Month

2. 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  All trading conducted by contributors on Virtual Trading Floor is done through T3 Trading Group, LLC 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).

3. Position Size
RUT Butterfly position size - 10 contracts scaling to 30.
All profit, loss, Delta and Theta numbers within these guidelines are based off of the above position size.
If you are trading a different position size, you will need to adjust these numbers accordingly.
Delta/Theta ratios are the same regardless of position size.

4. Risk Management and Profit Targets
Planned Capital - $50,000
Minimum Capital Required in Account - $100,000
Profit Target - $15,000
Reduced Profit Target 21 DTE - $5,000
Max Loss - $15,000
All decisions are made at 3:30 PM EDT. The daily range is ignored. UNLESS the trade is over profit target or under 9 DTE and we choose to stay in the position.

5. Trade Exits Exit 1 – ($15,000) profit target hit
Exit 2 – ($5,000) 33% profit target is hit 21 DTE of closer
Exit 3 – Friday before expiration
Exit 4 – Maximum loss number ($15,000) is exceeded at 3:30 PM EDT.
Exit 5 – Any time the preponderance of evidence shows that the position is more likely to lose money than to make money if we stay in the trade AND it cannot be corrected.
If we choose to stay in the position after exit points are hit, the position will be monitored and adjusted as needed.

6. Trade Set Up Date: March 24, 2008 RUT Price: 699.80 Entry Strikes: 680
Purchase 10 – 630/680/730 Put Butterflies
Control Point: 680
Add Points: /740
Roll Points: /760/770/780/800
First Downside Adjustment: 640

7. Matrix on Entry

8. Graph on Entry

9. Price Chart on Entry

10. April 11, 2008 Three Weeks Later

11. Analyze Graph

12. April 18, 2008 Maximum Delta/Theta Ratio of 1.5/1 is Exceeded

13. Graph Before Adjustment

14. Since we did not reach the add point of 720, we will roll the 680 butterflies to 700 instead of adding to the position

15. Position After Adjustment

16. April 25, 2008 RUT has Exceeded 720 Add Point

17. Position Before Adjustment

18. Add 670/720/770 Butterflies

19. Graph of New Position

20. Price Chart

21. April 29, 2008 Profit Target is Hit

22. April 28, 2008 Analyze Graph

23. Taking The Trade Into Expiration
It has been a relatively easy month.
According to the core guidelines, the trade needs to be exited today.
More experienced traders who are willing to risk losing a significant amount of money can stay in the trade and even bring it into expiration in order to do so.
However we have decided to take the trade into expiration.

24. Guidelines For Trading Past Your Profit Target and Into Expiration
Must be willing to lose money in order to make more.
Must ALWAYS know your exit point.
Must be able to monitor the market and adjust as needed.
Must be able to incrementally adjust your position.

25. Trading close to expiration can be rewarding but it is risky
The closer you are to expiration the more vulnerable the trade is to a large price movement, even if you are up a significant amount of money.
Gain and lose significant amounts of money with relatively small price movements.
Because of the additional risk, we need to take precautions and trade differently.
Must constantly and objectively weigh the risk of staying in the position.
Takes more skill than simply “following guidelines”.

26. Must be willing to lose money in order to make more money
Once you hit your profit target or are at the Friday before expiration, in order to stay in the trade, you must be willing to risk at least 20% of your planned capital, in this case about $10,000, if not, it is time to GET OUT!
ANYTIME you are no longer willing to risk losing a reasonable amount of money. It is time to GET OUT!

27. ALWAYS know your exit points
I’ve seen too many times where people have exceeded their profit targets and then proceeded to take much more than a maximum loss on a trade.
To avoid this, you MUST KNOW at all times the price points you will exit and the dollar amount of profit or loss you will exit at.
You MUST HAVE THE DISCIPLINE to stick to those numbers!

28. Must be available to monitor the market and adjust as needed
I typically check trades once per day as I have no desire to sit there and watch the stock market all day. However, when I CHOOSE to trade closer than10 DTE I know I need to monitor the market to control my risk.

29. Incrementally Adjust Your Position
You must be able to make small enough adjustments to control risk without over adjusting the position and opening up yourself to getting chopped out of the trade.
If you find yourself getting chopped up, EXIT THE TRADE and move on to the next month.

30. "Focus on the results you expect, not on the mechanics for doing the job."
It is imperative that you stick to your risk management rules, your results, but it is equally important that you do NOT get caught up in the mechanics of the trade.
Your “job” in the trade is to make as much as you can WHILE STAYING WITHIN YOUR RISK MANAGEMENT RULES.
Do whatever is necessary to keep the probability of winning in your favor and when you cannot, EXIT THE TRADE

31. New Delta Guidelines
These guidelines are for the bearish butterfly trade on RUT, starting with 10 contracts, scaling to 30. The numbers must be modified if trading a different position size.
These guidelines are only to be used when trading near expiration or when the profit target is exceeded AND you choose to stay in the position.
These guidelines can be loosely followed if the profit target has not been achieved or if it has been achieved and the trade is over 7 DTE but should be strictly followed if the trade has hit profit target AND it is 7 DTE or closer. Of course the closer you are to your target and expiration, the more closely you should follow these guidelines.

32. Intraday Delta Guidelines
Intraday 10 AM EST – 3:30 PM EST maximum position Delta is +/- 500.
When Delta is exceeded, remove, add or reposition butterflies to correct delta to between 300 and The Delta must remain the same sign. IE. – 550 Delta would be corrected to – 350 Delta NOT Delta.
Maximum size is 30 contracts.

33. 10:00 AM and 3:30 PM Delta Guidelines
AT 3:30 PM EST maximum position Delta is +/
Delta prior to 10:00 AM and after the 3:30 PM adjustment is made, will be ignored.
If Delta is greater than +/- ~250, Adjust Delta to between 200 and ~250. The Delta must remain the same sign. IE. –550 Delta would be corrected to
-250 Delta NOT Delta.

34. Exit Guidelines
Whenever you hit your predetermined numbers OR you are not willing to lose additional money.
Whenever you are satisfied with your profit.
Whenever a 15 point overnight more will put you past your maximum loss number and you cannot reasonably correct the position.
Whenever Gamma is so high that you cannot withstand “regular” price movements without constantly adjusting the position. IE. Whenever the position becomes unmanageable.
Whenever you feel the odds of making more money are no longer in your favor.

35. May 2008 Expiration April 29, 2008 Under 21 DTE Profit Target is Hit

36. April 29, 2008 Analyze Graph

37. April 29, 2008 Situation
Up $6340, which is past the reduced profit target per guidelines.
How much am I willing to risk at to stay in? 10K
Can I adjust the trade to meet my new Delta guidelines and take an overnight move of at least15 points and not exceed my loss numbers?
What is my exit point? When trade is down $3700

38. We are now watching the market periodically throughout the day and using expiration guidelines May 1, 2008 – Maximum Delta of 500 is Exceeded

39. Graph Before Adjustment

40. Add Butterflies

41. New Position

42. May 2, 2008 10:30 AM Maximum Delta of 500 is Exceeded

43. Graph Before Adjustment

44. Remove Butterflies

45. New Position

46. May 6, 2008 – 3:30 PM Maximum Delta of 500 is Exceeded We are 10 DTE and must monitor position more regularly

47. Graph Before Adjustment

48. Remove Butterflies

49. New Position

50. May 7, 2008 – 3:30 PM Maximum Delta Going Into Close is Exceeded

51. Graph Before Adjustment

52. Add Butterflies

53. New Position

54. May 8, 2008 – 3:30 PM Maximum Delta Going Into Close is Exceeded

55. Graph Before Adjustment

56. Add Butterfly

57. New Position

58. May 12, 2008 – 12:00 PM Maximum Delta of 500 is Exceeded $15,000 Profit Target is Exceeded

59. Graph Before Adjustment

60. Remove Butterflies

61. New Position

62. May 12, 2008 – 2:30 PM Maximum Delta of 500 is Exceeded

63. Graph Before Adjustment

64. Remove Butterflies

65. New Position

66. May 12, 2008 – 3:30 PM Maximum Delta of 250 Going Into Close is Exceeded

67. Graph Before Adjustment

68. Remove 2 - 700 Butterflies Buy 1 – 760 Butterfly

69. New Position

70. May 13, 2008 – 3:00 PM Maximum Delta of 500 is Exceeded

71. Graph Before Adjustment

72. Add Butterflies

73. New Position

74. May 14, 2008 – 10:00 AM Maximum Delta of 500 is Exceeded

75. Graph Before Adjustment

76. Add Butterflies

77. New Position

78. May 14, 2008 – 10:30 AM Maximum Delta of 500 is Exceeded

79. Graph Before Adjustment

80. Add Butterflies

81. New Position

82. May 15, 2008 Decision Time Would You Expire the Trade?

83. Expiration Graph

84. How About If We Do This? Buy Back All 720 Puts Buy 10 - 710 Puts Sell 7 - 760 Puts

85. Graph After Adjustment

86. RUT Opened the following day at 744
RUT Opened the following day at and traded down to 737 buy 10:00 Settlement should have been around 740

87. Trade should have made between $24,000 and $27,000