SMB TRAINING OPTIONS TRAINING PROGRAM Presents:

1. SMB TRAINING OPTIONS TRAINING PROGRAM Presents:

2. The M3 Trading SystemPart 4 August 2011 Market Crash August 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!”

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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. August 2011 ExpirationRisk 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. About this section • We are going go through trade set up but then we are going to skip the beginning of the trade and go right to where the action is! • Trading extremely volatile moves into expiration. • Responsible trading • Knowing your limitations and when it’s time to give up • Keeping an open mind to the options that are available to you

7. Entry Position Price ChartAugust Expiration 2011

8. Entry PositionAugust 2011Expiration

9. Entry Position for August 2011Expiration on June 24

10. Fast Forward >>>> to where the trouble startsAugust 2 – 17 DTE

11. This is what we’ve done so far…. • 6-24 entered with 780 butterflies + 720 call • 7-01 added 10 - 780/790 verticals • 7-07 rolled 780 butterflies to 810 • 7-18 rolled 810 butterflies to 790

12. Here is the current position

13. Current Analyze Graph

14. In Case you are asking…..NO! We are NOT holding off on an adjustment just because the market is at support! Support and resistance areas are where we are most likely to get the very violent and unpredictable moves. Our position has a lot of down side risk and we need to deal with that risk.

15. Adjustment

16. New Position

17. We have increased range to the downside without taking on excessive upside risk and we can take a violent move in either direction

18. 2 Days LaterAugust 4 – 15 DTE

19. August 4 – 15 DTE Position has too much positive Delta

20. Downside risk is becoming excessive

21. Roll back 750 butterflies 40 points to 710 butterflies and roll back 780/790 vertical spreads to 710/720 vertical spreads

22. New PositionDelta has been corrected

23. New Position We are taking on a little upside risk but certainly nothing excessive

24. 4 Days Later -10 AMAugust 8 – 11 DTE Down 75 points from resistance

25. 10 AMAugust 8 – 11 DTE

26. Position could use an adjustment but, since we happen to be checking this position once a day, we will wait till 3:30 The purpose of this slide is to show that we “could have” caught this move before it got too bad

27. August 8 - 3:30 PM

28. August 8 - 3:30 PM

29. If this were live, you’d want to be out of the position this close to expiration with this kind of price movement. But let’s see how long we can hold a relatively safe position!

30. This is how I would reposition

31. This is the new 90 ish Delta call Greeks are good

32. New Position

33. 4 Days LaterAugust 12 – 7 DTE Over 50 point swing in 3 days

34. August 12 – 7 DTE

35. Upside risk is more than we would like but not a huge problem

36. We can easily correct that!

37. New Position

38. 3 Days LaterAugust 15 – 4DTE

39. August 15 – 4DTE

40. We have some options:Stay where we areLow risk directional playHop and hope

41. Low risk directional playThis would be a great alternative to closing the position at a loss. We could pull off most of our upside price movement risk and Theta risk and wait.

42. Being “willing” to accept a reasonable loss… can create great results!

43. Hop and HopeCenter our position ATM and hope the price doesn’t move

44. We close out the existing position and reposition ATM…In doing so, we do not want to take on excessive risk because “One win IS NEVER, EVER worth risking a massive loss!!!

45. New Position

46. Next Day August 16 – 3 DTE

47. Position looks fine and is almost back to break even

48. We are taking on too much price movement risk

49. If we choose to stay in we need to cut back the downside risk

50. New Position