Jeff Augen Weekly Strats

[Guest]

Well as a quick update, I monitored AAPL on the closing Friday trade, the results were quite good:

At 1:00 AAPL was right at 645. So SELL the IB:

-10 640

+20 645

-10 650

Credit of $3.41, to overcome commissions, at my commission structure, we need to account for another .04 (that includes buying it back). So the credit is really $3.37.

Here's the values (sorry for some of the gaps, I do have a real job so missed some), and times are CST:

1:00 3.41

1:45 3.45 (-0.08)

1:55 3.38 (0.01)

2:00 3.51 (-0.14)

2:05 2.94 (0.43)

2:25 3.01 (0.36)

2:30 3.02 (0.35)

2:35 3.06 (0.31)

2:45 3.14 (0.23)

2:55 3.10 (0.27)

2:57 2.96 (0.41)

2:59 2.85 (0.52)

2.59.59: 2.76 (0.61)

So, if you have nerves and reflexes of steel, you could have closed in the last seconds for a 18.1% gain. No one does that, but waiting to the last two minutes still would have netted you over 15%. However, I would never have been able to wait that long. I would like to think I'd have bailed about an hour in at the 2:05 mark and netted 15%.

Short seems promising after one week.

Edited August 17, 2012 by cwelsh

[Guest]

I'd be happy to help also. Would someone mind summarizing the rules and P/L snapshot intervals? This will help me to size this effort and also ensure that we all provide consistent and comparable data.

The rules are simple. For whatever stock you have (lets say its appl) Thursday morning, sometime before 10:00 EST, ideally about 30mins after the open, you WRITE down the stock price and the butterflys for 5 and 10 intervals. Lets say 30 minutes after opening next Thursday, AAPL is at 650. You would then write down the midpoint price of the long butterfly 645/650/655 and the 640/650/660. Then take a measurement at least every thirty minutes through Friday's close. If you miss one or two, who cares.

So you'll have something that looks like this:

AAPL 9:30 650

645/650/655 $3.00

640/650/660 $5.50

645/650/655 640/650/660

10:00 $3.55 $5.75

10:30 $3.55 $5.75

11:00 $3.55 $5.75

11:30 $3.55 $5.75

and so on -- what I want to receive from everyone is the above table sometime Friday evening so I can compile it over the weekend.

[Guest]

How did you calculate 17.8% gain?

I received a $3.37 credit (after commissions) and bought it back for 2.76 which is a 18.1% gain, and evidently I made an error on my calculator, I have fixed the above post.

[Guest]

Well... I just wanted to chime in

I've been reading all of the posts here (sometimes several times), and there seems to be a lot of confusion. I am definitely very confused. Let's start with the first trade. DW writes:

"For the Long butterfly trade, Augen sets the following conditions.

• Entry Day: Thursday, when new weeklies enter the market. If a market moving event is expected on Friday (the next day), such as a jobs report, then wait until it's over before entering the trade.
  
• Entry Time: Thursday by 10:00"
  

I presume this is a debit trade placed on weeklies that expire the following Friday (8 days). Let's use yesterday's SPY as an example (price was 141.02 at 10am). We could place one of the two following trades:

Buy 1 contract of 140 put

Sell 2 contracts of 141 put

Buy 1 contract of 142 put

or

Buy 1 contract of 139 put

Sell 2 contracts of 141 put

Buy 1 contract of 143 put

I'm not sure which of the above trades is better. The latter is a four-point spread mentioned by Kim (is this right Kim?).

DW adds:

• "Trade criteria: ATM (or close to it) butterfly. Highly liquid stock, well, such as AAPL or GOOG.
  
• Exit: He suggests, exiting by Friday close, however, the position could be held until Tuesday (morning?). After which the rapid effects of time decay will begin to take hold of the trade."
  

These two states are the source of most of the confusion. We don't want the stock to move, so it doesn't make sense to use AAPL and GOOG. Why not a non-volatile stock like JNJ or MSFT or an index?

Also, on which Friday should the trade be closed? In one day or 8 days? Since the trade benefits from time decay, then shouldn't the trade be held beyond Tuesday, when "the rapid effects of time decay ... begin to take hold of the trade"?

Any help clearing things up would be greatly appreciated.

Well...once the trade is opened, the profit zone is not just going to between the two outer strikes, but actually much further for stocks like APPL....

I have attached two images (using RUT as an example), the first is what the trade should look like on Friday if successful. For stocks like AAPL this range would be wider. The second image is what happens once time decay takes over. This usually comes around by Wednesday. So the profitability range has been greatly decreased. The MMs can no longer compensate for the rapid time decay.

So the trade is fine, once the stock doesn't do something crazy. I am not sure if a low volatility stock such as MSFT could be considered a better candidate. But I guess that's what backtesting is for.

[Guest DShaver]

Just a quick paper trade to test this out:

I did:

sell 10 640

buy 20 645

sell 10 650

opened at 1:30 ET with stock at ~644.45

@ 3.04 credit.

Every $170 of risk returned $122.5, a whooping 72% return.

Any comments on this one anyone?

[Guest]

Hi, I actually monitored the 640/645/650 AAPL short butterly in real time as Chris did - starting at 1pm. AAPL traded between 644 and 646 up until 3pm and the Short Butterfly would have lost considerable money. Actually, selling the butterfly at 2pm or even 2.30, would have given substantially more credit.

BUT - You would have had to wait literally up to 4 minutes before closing to make the trade profitable, when the underlying jumped a couple of point. The prices were fluctuating like crazy though, and I dare anyone who doesn't have a half million dollar account to hold on to short ITM AAPL calls up until 3.56pm!! If you were crazy enough to do it AND got the trade filled, then, you would have made a real bundle (at least 25% based on the margin required) - but I think this happend only because the stock started moving in the last 15 minutes - had it not done so, the loss would have been substantial - so definitely stay away from this thrill ride, IMO.

The long butterfly, on the other hand, looks quite interesting and hopefully we can track it nicely in the next few weeks.

At 1.00pm = Short Butterfly for 2.62 Credit (AAPL = 644.20)

At 2.00pm = 3.39 Bid / 3.65 Ask (AAPL = 644.93)

At 2.30pm = 3.64 Bid / 3.80 Ask (AAPL = 645.16)

At 3.00pm = 3.34 Bid / 3.57 Ask (AAPL = 645.85)

At 3.45pm = 2.97 Bid / 3.08 Ask (AAPL = 646.91)

At 3.50pm = 2.91 Bid / 3.12 Ask (AAPL = 646.96)

At 3.54pm = 2.96 Bid / 3.08 Ask (AAPL = 647.02)

At 3.56pm = 2.42 Bid / 2.67 Ask (AAPL = 647.38)

At 3.57pm = 2.14 Bid / 2.34 Ask (AAPL = 647.70)

At 3.58pm = 2.10 Bid / 2.55 Ask (AAPL = 647.68)

At 3.59pm = 1.86 Bid / 2.17 ASk (AAPL = 647.99)

At 4.00pm = 1.61 Bid / 2.07 Ask (AAPL = 648.11)

Edited August 17, 2012 by csensen13

[Guest DShaver]

As for the ITM worries about the short trades, I personally trade with TDAmeritrade using TOS. I set my level of options allowance to never allow me to have a naked risk. Now with that in mind, I did a few months back have some trade (I don't remember what it was) finish ITM on GOOG, leaving me "responsible" to buy something like 160K of GOOG which I didn't have. So my Account read that I was in a Margin Call for upwards of 140K plus everything in my account, but since I wasn't naked, all that happened was TD allowed me to sell the shares of google that I had "bought" as early as possible Monday and I was left with the profit. I guess that's just how they do it?

I also had an incident on a calender when the short strike was ITM and expired putting me into a Margin Call of over 100K but the option's guys at TD just executed the long automatically to cover the call requirement. Is that unusual?

[Guest]

As for the ITM worries about the short trades, I personally trade with TDAmeritrade using TOS. I set my level of options allowance to never allow me to have a naked risk. Now with that in mind, I did a few months back have some trade (I don't remember what it was) finish ITM on GOOG, leaving me "responsible" to buy something like 160K of GOOG which I didn't have. So my Account read that I was in a Margin Call for upwards of 140K plus everything in my account, but since I wasn't naked, all that happened was TD allowed me to sell the shares of google that I had "bought" as early as possible Monday and I was left with the profit. I guess that's just how they do it?

I also had an incident on a calender when the short strike was ITM and expired putting me into a Margin Call of over 100K but the option's guys at TD just executed the long automatically to cover the call requirement. Is that unusual?

Go read my post on assignment and exercise. Yes that's how TOS handles it BUT you were "lucky." If there had been a significant market move at the open, which can happen on GOOG, PCLN, AAPL and the like, you could have lost your shirt.

As for monitoring, I agree, let's monitor the LONG position the next four weeks.

We're still looking for 2-3 more people to help monitor. Right now we have:

AAPL -- Chirs

AMZN - Scott

CSTR

EOG

GOOG - Scott

GLD -- Chris

LNKD -- Chris

LULU -- Donald

MA (slippage may be too high here)

MNST

NFLX

PCLN

SINA

VMW

YELP--Donald

I'd really like to see someone pick up PCLN and NFLX (and Kim, you can do SPY ).

[Guest]

I'll take PCLN and NFLX

[Guest]

Go read my post on assignment and exercise. Yes that's how TOS handles it BUT you were "lucky." If there had been a significant market move at the open, which can happen on GOOG, PCLN, AAPL and the like, you could have lost your shirt.

As for monitoring, I agree, let's monitor the LONG position the next four weeks.

We're still looking for 2-3 more people to help monitor. Right now we have:

AAPL -- Chirs

AMZN - Scott

CSTR

EOG

GOOG - Scott

GLD -- Chris

LNKD -- Chris

LULU -- Donald

MA (slippage may be too high here)

MNST

NFLX

PCLN

SINA

VMW

YELP--Donald

I'd really like to see someone pick up PCLN and NFLX (and Kim, you can do SPY ).

Chris,

I'd love to help, but I am rarely at a terminal in the morning, and if I am lucky I can get on once a day. Also, given my schedule I do not think this trade would work for me. Why did everyone decide to test by monitoring live versus backtesting using TOS OnDemand or something similar?

[Guest]

We had two members use backtesting, and I did as well on two stocks over a three month period. The backtesting results were very positive. However, I personally never go live with a strategy without paper trading it in actual markets first, then trading half positions (or even quarters) second. I'm probably more cautious than most -- then again I've blown out two accounts by NOT doing that. I've had several strategies that for whatever reason backtested perfectly, then I could never implement them.

I wanted assistance because it'd cut testing time in half. Ideally we narrow the above list down to the 3-5 best candidates and run with those. If anyone wants to jump in with real money right away and report those results, by all means, do so and report those results instead of paper trading.

And if you don't have time to do that monitoring, I perfectly understand -- I'll be nice and share the results anyways

[Guest]

Might as well add MNST and VMW for me as well. I don't mind taking on 4

I don't think it would be a bad idea to also do backtesting on these candidates for last 6 months. Members without time during the trading day could take that on. It still helps. TOS EOD prices..if a candidate works well by buying at EOD prices then why not adjust the strategy and buy around EOD on Thurs and sell again EOD on Fri. It could be that particular stock has different intraday vs night time volatility?

Edited August 18, 2012 by fieldydwb

[Guest]

I'd like to help but I am away from computer next week Thursday and Friday. Maybe I can test in the later weeks.

I actually have tested long butterfly on AAPL for real.. I buy to open 1 call butterfly 620/630/640 on Thursday around 9:50am for a debit of $2.4 . For the whole Thursday the spread is around 2.1-2.5

Today AAPL has big rally, so down my position. I waited till afternoon, it's still way under the water. I got out for 44% loss. It's unlucky for AAPL trade because it's got a upgrade today. But If I did AMZN it should be just fine. I can enter at about 2.5 on Thursday, and exit at about 3.5 today

[Guest]

I do have time, just not during the day when its needed. Sorry.

Chris, would you be willing to share a larger list of the most liquid options and how you determined they were so liquid? Did you use volume, OI, or something else and where did you get that info in a format where you could screen for it?

Thanks!

[Guest]

Same thing happened to me. That was just bad timing/luck and expected given the news and move of the underlying.

[Guest]

I'd like to help but I am away from computer next week Thursday and Friday. Maybe I can test in the later weeks.

I actually have tested long butterfly on AAPL for real.. I buy to open 1 call butterfly 620/630/640 on Thursday around 9:50am for a debit of $2.4 . For the whole Thursday the spread is around 2.1-2.5

Today AAPL has big rally, so down my position. I waited till afternoon, it's still way under the water. I got out for 44% loss. It's unlucky for AAPL trade because it's got a upgrade today. But If I did AMZN it should be just fine. I can enter at about 2.5 on Thursday, and exit at about 3.5 today

What strikes did you use for Amazon? If the Thurs opening price was in between strikes, like I think Amazon was, then would you just do an IC with the inner short strangle at 5 points apart?

[Guest]

I do have time, just not during the day when its needed. Sorry.

Chris, would you be willing to share a larger list of the most liquid options and how you determined they were so liquid? Did you use volume, OI, or something else and where did you get that info in a format where you could screen for it?

Thanks!

My list is at my office, but sure, I can share it when I go back in on Monday. As to how I got it, I used a publicly available option screener to list out the most volatile options with an underlying valued over $25 (ended up somewhere around 150 names). I took that list and entered each name into TOS and looked at the OI and trading volumes. Anything under 1K OI+Trading volume automatically got booted --- my list was still a little too big so I knocked off the lowest 50 OI+Vol stocks. That gave me a list of around 40 or so. Nothing that scientific or complex too it, just a working place to start.

Edited August 18, 2012 by cwelsh

[Guest]

Just a quick paper trade to test this out:

I did:

sell 10 640

buy 20 645

sell 10 650

opened at 1:30 ET with stock at ~644.45

@ 3.04 credit.

Every $170 of risk returned $122.5, a whooping 72% return.

Any comments on this one anyone?

I think the returns on AAPL are distorted today because the stock went ~ 1.8% today alone. That is not a typical Friday.

[Guest]

Go read my post on assignment and exercise. Yes that's how TOS handles it BUT you were "lucky." If there had been a significant market move at the open, which can happen on GOOG, PCLN, AAPL and the like, you could have lost your shirt.

As for monitoring, I agree, let's monitor the LONG position the next four weeks.

We're still looking for 2-3 more people to help monitor. Right now we have:

AAPL -- Chirs, Dominic

AMZN - Scott

CSTR

EOG

GOOG - Scott

GLD -- Chris

LNKD -- Chris

LULU -- Donald

MA (slippage may be too high here)

MNST

NFLX

PCLN - Dominic

SINA

VMW

YELP--Donald

SPY - Kim??, Dominic [ I am not sure if Kim agreed to do SPY]

I'd really like to see someone pick up PCLN and NFLX (and Kim, you can do SPY ).

In my previous post, I called SPY, AAPL & SPY... Actually, I wanted to do AAPL again, even though Chris has it, just to compare entry points and exits.... Because, Augen said you could hold the position until Tuesday... So I think for unprofitable Friday trades, I will hold until Tuesday or until profitable and then compare with Chris.

[Guest]

AAPL -- Chirs, Dominic

AMZN - Scott

CSTR

EOG

GOOG - Scott

GLD -- Chris

LNKD -- Chris

LULU -- Donald

MA (slippage may be too high here)

MNST -Fieldy

NFLX -Fieldy

PCLN - Dominic

SINA -FIELDY

VMW -Fieldy

YELP--Donald

SPY - Kim??, Dominic [ I am not sure if Kim agreed to do SPY]

[Guest]

This makes me happy, way to go group.

[Guest]

I'll take CSTR and EOG.

AAPL -- Chirs, Dominic

AMZN - Scott

CSTR - Rusty

EOG - Rusty

GOOG - Scott

GLD -- Chris

LNKD -- Chris

LULU -- Donald

MA (slippage may be too high here)

MNST -Fieldy

NFLX -Fieldy

PCLN - Dominic

SINA -FIELDY

VMW -Fieldy

YELP--Donald

SPY - Kim??, Dominic [ I am not sure if Kim agreed to do SPY]

Edited August 18, 2012 by Rusty

[Guest]

Attached is the last 6 months for NFLX. I used EOD data available on TOS which means that the Option pricing and structures are based on the EOD data. It's the best data I have right now and it should give some indication to success. The average % return was 5.83% with $51 per 10 contracts traded before commissions. It would have been higher except one loss of 40% when the stock moved 10% in one day. I believe we could have had stopped this loss somewhat.

[Guest]

Well as a quick update, I monitored AAPL on the closing Friday trade, the results were quite good: At 1:00 AAPL was right at 645. So SELL the IB: -10 640 +20 645 -10 650 Credit of $3.41, to overcome commissions, at my commission structure, we need to account for another .04 (that includes buying it back). So the credit is really $3.37. Here's the values (sorry for some of the gaps, I do have a real job so missed some), and times are CST: 1:00 3.41 1:45 3.45 (-0.08) 1:55 3.38 (0.01) 2:00 3.51 (-0.14) 2:05 2.94 (0.43) 2:25 3.01 (0.36) 2:30 3.02 (0.35) 2:35 3.06 (0.31) 2:45 3.14 (0.23) 2:55 3.10 (0.27) 2:57 2.96 (0.41) 2:59 2.85 (0.52) 2.59.59: 2.76 (0.61) So, if you have nerves and reflexes of steel, you could have closed in the last seconds for a 18.1% gain. No one does that, but waiting to the last two minutes still would have netted you over 15%. However, I would never have been able to wait that long. I would like to think I'd have bailed about an hour in at the 2:05 mark and netted 15%. Short seems promising after one week.

Hi, I actually monitored the 640/645/650 AAPL short butterly in real time as Chris did - starting at 1pm. AAPL traded between 644 and 646 up until 3pm and the Short Butterfly would have lost considerable money. Actually, selling the butterfly at 2pm or even 2.30, would have given substantially more credit. BUT - You would have had to wait literally up to 4 minutes before closing to make the trade profitable, when the underlying jumped a couple of point. The prices were fluctuating like crazy though, and I dare anyone who doesn't have a half million dollar account to hold on to short ITM AAPL calls up until 3.56pm!! If you were crazy enough to do it AND got the trade filled, then, you would have made a real bundle (at least 25% based on the margin required) - but I think this happend only because the stock started moving in the last 15 minutes - had it not done so, the loss would have been substantial - so definitely stay away from this thrill ride, IMO. The long butterfly, on the other hand, looks quite interesting and hopefully we can track it nicely in the next few weeks. At 1.00pm = Short Butterfly for 2.62 Credit (AAPL = 644.20) At 2.00pm = 3.39 Bid / 3.65 Ask (AAPL = 644.93) At 2.30pm = 3.64 Bid / 3.80 Ask (AAPL = 645.16) At 3.00pm = 3.34 Bid / 3.57 Ask (AAPL = 645.85) At 3.45pm = 2.97 Bid / 3.08 Ask (AAPL = 646.91) At 3.50pm = 2.91 Bid / 3.12 Ask (AAPL = 646.96) At 3.54pm = 2.96 Bid / 3.08 Ask (AAPL = 647.02) At 3.56pm = 2.42 Bid / 2.67 Ask (AAPL = 647.38) At 3.57pm = 2.14 Bid / 2.34 Ask (AAPL = 647.70) At 3.58pm = 2.10 Bid / 2.55 Ask (AAPL = 647.68) At 3.59pm = 1.86 Bid / 2.17 ASk (AAPL = 647.99) At 4.00pm = 1.61 Bid / 2.07 Ask (AAPL = 648.11)

There seems to be a significant difference between your numbers.(aside from the time differential). I wonder why?

[Guest]

I'll take CSTR and EOG.

AAPL -- Chirs, Dominic

AMZN - Scott

CSTR - Rusty

EOG - Rusty

GOOG - Scott

GLD -- Chris

LNKD -- Chris

LULU -- Donald

MA (slippage may be too high here)

MNST -Fieldy

NFLX -Fieldy

PCLN - Dominic

SINA -FIELDY

VMW -Fieldy

YELP--Donald

SPY - Kim??, Dominic [ I am not sure if Kim agreed to do SPY]

I'll take AMZN and GOOG.

A general note. In IB you can chart the trade in some detail, so it is not neccesary to follow it in real time.

[Guest]

There seems to be a significant difference between your numbers.(aside from the time differential). I wonder why?

Well... the differences arose because the first trade was entered at 1pm CST (2pm EST) and used an Iron Butterfly and when AAPL was 645 (giving a higher credit). The second trade was entered at 1pm EST and used either a call or put butterfly when apple was at 644.20. Augen... well, I am not sure if he was talking about EST or CST... as they were running short on time, he said he would continue his explanation in his next webinar. He started out by explaining the long butterfly in detail... but he seemed equally excited about the prospects of the short butterfly.

Edited August 18, 2012 by dwilliams8649

[Guest]

I just realized that CSTR and EOG do not have weekly options, so the real-time test would only be on 9/20-21. I will search for some other high-vol underlyings.

[Guest]

Attached is the last 4 months for SINA, a lot less attractive than NFLX. The average % return was 2.67% with $15 per 10 contracts traded before commissions. I used 2.50 increments but will try with 5 to see if I get better results.

[Guest]

VMW, YELP and MNST are both monthly only as well.

Here is the new list:

AAPL -- Chirs, Dominic

AMZN - Scott

GOOG - Scott

GLD -- Chris

LNKD -- Chris

LULU -- Donald

MA -Fieldy

NFLX -Fieldy

PCLN - Dominic

SINA -Fieldy

YELP--Donald

SPY - Kim??, Dominic [ I am not sure if Kim agreed to do SPY]

RUT -Fieldy

Removed:

CSTR - Rusty

EOG - Rusty

MNST -Fieldy

VMW -Fieldy

YELP--Donald

Edited August 19, 2012 by fieldydwb

[Guest]

I have two general concerns.

First, we are considering some of the more volatile stocks for this strategy which sounds a bit counter intuitive since we want the stocks not to move. For example, we have GLD in the list - I remember Chris mentioned that he was using weekly RIC on GLD which is basically a short fly, opened on Thursday and closed sometime on Tuesday or Wednesday. Maybe it's matter of timing and both can make money, but it sound to me that for those volatile stocks, taking the other side (short fly) would have more chance to be profitable. The long fly would be more suitable for stocks like SPY.

Second concern is that long fly is vega negative strategy. With IV at record lows, it might be not the best time now to do it. Any sharp pullback will hurt the trades twice - the movement and the IV increase. This is the same reason why I hesitate to open ICs when IV is low - you don't get enough credit to justify the risk.

While I tend to agree that the risks in an overall low IV environment are higher I think its not so much about the absolute vol level but more about the premium of IV to realised vol. That's why a high IV stock might still work well. Say you have a 40 IV stock with only realises about 30 HV that should be a better candidate than a 15 IV vol stock that realises 16. Higher IV also means a wider b/e. So we're looking for 'rich' names (as in IV well over realised (for no good reason ) rather than high or low IV

[Guest]

While I tend to agree that the risks in an overall low IV environment are higher I think its not so much about the absolute vol level but more about the premium of IV to realised vol. That's why a high IV stock might still work well. Say you have a 40 IV stock with only realises about 30 HV that should be a better candidate than a 15 IV vol stock that realises 16. Higher IV also means a wider b/e. So we're looking for 'rich' names (as in IV well over realised (for no good reason ) rather than high or low IV

Also, when I was backtesting, for whatever reason, lower IV stocks did NOT work. I ran IBM, JNJ, XOM, and KO and they consistently where not consistently profitable on the long butterfly strategy. Simply not enough premium to make it worthwhile.

[Guest]

From what I've tested so far it works terribly on RUT and SPY using TOS thinkback EOD pricing.

Edited August 20, 2012 by fieldydwb

[Guest]

From what I've tested so far it works terribly on RUT and SPY using TOS thinkback EOD pricing.

Using it on EOD data takes away the pricing inefficiencies that occur as the market makers try to compensate for emending time decay. And Kim tested it on SPY using tick/min data and it had great results (except for the one major loss, which could have been avoided).

[Guest]

Also, when I was backtesting, for whatever reason, lower IV stocks did NOT work. I ran IBM, JNJ, XOM, and KO and they consistently where not consistently profitable on the long butterfly strategy. Simply not enough premium to make it worthwhile.

That's what I tried to say in my previous post. It might not be a good strat for low IV stocks. High IV stocks will have a wide range of profitability that extends beyond the outer strikes, so don't need to worry too much in that regard. The goal is to find stocks that have medium to high (but not crazy high) vol.

Edited August 20, 2012 by dwilliams8649

[Guest]

Jeff Augen's webinar was upload... here is the linke.. If it's something that's not allowed, my apologies KIm [ you can delete it ]

http://optionstribe.com/2012/08/recording-of-how-to-capitalize-on-price-distortions-in-weekly-options-jeff-augen/

[Guest]

Been following this discussion with much interest. I would like to assist with the monitoring, but I confess to having gotten a bit confused in the early part of the forum and never quite got it sorted out.

This is selling a butterfly (I think of getting a credit as selling and paying a debit as buying) early Thrs and selling mid-Fr, to capture "weekend" time decay, right? Then, maybe, buying another butterfly for the last couple hours of the week when, presumably, the "weekend" time decay has already occurred and gamma is the major factor. Did I get that right?

[Guest DShaver]

Basically yes, it's a little more complicated but my explanation I was typing for you was very long and I accidentally deleted it all . but a long butterfly looks like _/\_ and a short is the opposite (similar to a RIC P/L). Watch that webinar video DW posted if you need more, it's very informative.

[Guest]

Thanks, DShaver. Sorry you last all that work, but I appreciate it.

It occurs to me that the accelerated time decay just before the weekend could have something to do with why I don't like the earnings trades that end late in the week (when trading weeklies). I expect theta to be high then, but it still seems to surprise me how much gamma it can offset.

[Guest]

I've just been looking at a few names and how it would have worked for them last Thur-Fri. It probably wasn't the best end of week to do it as market rallied a bit, but still some names had gains quite a few lost money though.

In his webinar examples Augen had AMZN and AAPL and made ~50% profit from Thur morning to Fri evening. However both stocks behaved optimal for that strategy and were almost exactly on the middle strike by Friday afternoon - even a small move will easily reduce that profit to 25-30%.

For example AMZN 235/240/245 went from ~1.10 to ~1.35 last Thu/Fri (~+22% before comm) Thats with AMZN moving from ~237 (so mid strike wasn't optimal for this one) to ~ 241 (~+1.7%)

So I think if i had that as a typical result I'd be quite happy to trade that strategy. BUT above prices are MID prices. The bid offer for the fly is about 50-60 cents all day. So the question is how much of that you'll have to pay to the MM's to trade (especially if you want out of it half an hour before the WE)! With 25c profit even if you only pay 1/10th of that spread (so 5c) that will reduce above profit from 25c to 15c (5c in and out) leaves 13.5% before comm and assuming 6c comm (4 legs round trip at 0.75 per lot with IB) that melts to 8% after slippage and comm. Certainly NOT worth the risk of losing 50-60%

So I think we need to focus on high value names (like AAPL,GOOG, RUT?) so you can do 10$ spacing and get say ~2$+ premium (that halfs the comm from 6% to 3% of premium) and we need to find super liquid names with next to no slippage. So if everyone is using mid for the paper trading you're doing now, that might lead to a nasty surprise if you trade for real and have to pay (even small) spreads all of a sudden.

[Guest]

My list is at my office, but sure, I can share it when I go back in on Monday. As to how I got it, I used a publicly available option screener to list out the most volatile options with an underlying valued over $25 (ended up somewhere around 150 names). I took that list and entered each name into TOS and looked at the OI and trading volumes. Anything under 1K OI+Trading volume automatically got booted --- my list was still a little too big so I knocked off the lowest 50 OI+Vol stocks. That gave me a list of around 40 or so. Nothing that scientific or complex too it, just a working place to start.

Hello again Chris. Would you mind sharing this list of liquid options?

Also, is there anything I may help with? I noted that I am not on a terminal much of the day, so it would have to be an "offline" activity.

Thanks.

Richard

[Guest]

I've just been looking at a few names and how it would have worked for them last Thur-Fri. It probably wasn't the best end of week to do it as market rallied a bit, but still some names had gains quite a few lost money though.

In his webinar examples Augen had AMZN and AAPL and made ~50% profit from Thur morning to Fri evening. However both stocks behaved optimal for that strategy and were almost exactly on the middle strike by Friday afternoon - even a small move will easily reduce that profit to 25-30%.

For example AMZN 235/240/245 went from ~1.10 to ~1.35 last Thu/Fri (~+22% before comm) Thats with AMZN moving from ~237 (so mid strike wasn't optimal for this one) to ~ 241 (~+1.7%)

So I think if i had that as a typical result I'd be quite happy to trade that strategy. BUT above prices are MID prices. The bid offer for the fly is about 50-60 cents all day. So the question is how much of that you'll have to pay to the MM's to trade (especially if you want out of it half an hour before the WE)! With 25c profit even if you only pay 1/10th of that spread (so 5c) that will reduce above profit from 25c to 15c (5c in and out) leaves 13.5% before comm and assuming 6c comm (4 legs round trip at 0.75 per lot with IB) that melts to 8% after slippage and comm. Certainly NOT worth the risk of losing 50-60%

So I think we need to focus on high value names (like AAPL,GOOG, RUT?) so you can do 10$ spacing and get say ~2$+ premium (that halfs the comm from 6% to 3% of premium) and we need to find super liquid names with next to no slippage. So if everyone is using mid for the paper trading you're doing now, that might lead to a nasty surprise if you trade for real and have to pay (even small) spreads all of a sudden.

Marco the bid/ask spread and actual fills is an EXCELLENT point. That .10 loss due (.05 in and .05 out) to slippage is probably an optimistic number. The loss would likely be greater. I have traded Amazon a few times on other trade types and the execution was definitely off the mid. I can go back and look at my numbers if there is interest.

This may not be a great time to trade AAPL because it is on a run. Some say its because of the iPhone 5 release info in Sept, iTV or something else. I don't know, but whatever it is AAPL is on a tear and breaking through any resistance it had.

What are the most liquid stock options out there?

What about doing this with RUT or one of the other European style indeces?

R

[Guest]

Marco the bid/ask spread and actual fills is an EXCELLENT point. That .10 loss due (.05 in and .05 out) to slippage is probably an optimistic number. The loss would likely be greater. I have traded Amazon a few times on other trade types and the execution was definitely off the mid. I can go back and look at my numbers if there is interest.

This may not be a great time to trade AAPL because it is on a run. Some say its because of the iPhone 5 release info in Sept, iTV or something else. I don't know, but whatever it is AAPL is on a tear and breaking through any resistance it had.

What are the most liquid stock options out there?

What about doing this with RUT or one of the other European style indeces?

R

agree that AAPL probably doesn't work right now but there will be times when the stock will be calmer again. Due to the high value (I heard rumours of a split though again) and the great liquidity I think this is still a prime candidate though. RUT might work in terms of comm and slippage as well. Even with the 4 leg IC I usually don't pay more than 10c through mid.

But still 20c round trip slippage will eat quite heavily into profits of say 50c on a 2$ and change fly.

Just like you I was trying to find a website that list the most liquid/active weekly options but couldn't get really anything like that.

Anyone who has an idea where to find that?

[Guest]

agree that AAPL probably doesn't work right now but there will be times when the stock will be calmer again. Due to the high value (I heard rumours of a split though again) and the great liquidity I think this is still a prime candidate though. RUT might work in terms of comm and slippage as well. Even with the 4 leg IC I usually don't pay more than 10c through mid.

But still 20c round trip slippage will eat quite heavily into profits of say 50c on a 2$ and change fly.

Just like you I was trying to find a website that list the most liquid/active weekly options but couldn't get really anything like that.

Anyone who has an idea where to find that?

Chris developed his own list and posted some of the stocks in this thread. I have asked him if he could post the rest. I think he did some manually analysis on volume & OI.

[Guest]

Chris developed his own list and posted some of the stocks in this thread. I have asked him if he could post the rest. I think he did some manually analysis on volume & OI.

there must be a web page that lists weekly option volume and lets you rank it - spend 20 odd mins googleing it but didn't find what I was looking for. Chris where did you get the raw data for your filter from? (wouldn't mind the list you came up with either)

thanks

[Guest]

What are the most liquid options you ask?

Using OptionVue's "Greatest dollar volume of options traded" scan:

(DVO - multiply the number of option contracts traded times the price they traded at, and add all of them up for a ticker...across all strikes and months)

(Volty = volatility. Pctl is the volatility percentile, based on the last 2 years.)

I used a filter of minimum price $15/share.

Edited August 22, 2012 by chadk

[Guest]

Great, thanks chad!

[Guest]

What are the most liquid options you ask?

Using OptionVue's "Greatest dollar volume of options traded" scan:

(DVO - multiply the number of option contracts traded times the price they traded at, and add all of them up for a ticker...across all strikes and months)

(Volty = volatility. Pctl is the volatility percentile, based on the last 2 years.)

I used a filter of minimum price $15/share.

Thank you Chad. Why does the price the options traded at factor into liquidity? Could you post the list purely on volume or OI?

Marco, the other thing I didn't consider is how liquid OTM or ITM options are. I wonder if that is different for each stock.

[Guest]

Thanks Chad. I was surprised to see PCLN, BIDU and CRM so high.

tjlocke99, the price of the options is important for the same reason as the price of the stock is important. A million shares of AAPL is not the same as million shares of SIRI.

Thanks Kim. I still don't see why the price of AAPL vs SIRI matters for option liquidity? Are you saying because there will be more "active" strikes on higher priced stocks?

[Guest]

Thanks Kim. I still don't see why the price of AAPL vs SIRI matters for option liquidity? Are you saying because there will be more "active" strikes on higher priced stocks?

well it makes sense to multiply the option price with the no of options traded to get a better comparison. Imagine an option is worth 10c (there will be more on a 10$ stock than on a 650$ stock for this price) and 10,000 lots traded - that's just 100k$ premium (so you and I can buy them ) but 10,000 lots of a say 32$ option are 3.2m$ so wouldn't make that much sense to have these two volumes next to each other in the ranking table

Edited August 23, 2012 by Marco

[Guest]

Thank you Chad. Why does the price the options traded at factor into liquidity? Could you post the list purely on volume or OI?

Marco, the other thing I didn't consider is how liquid OTM or ITM options are. I wonder if that is different for each stock.

Marco is right. Someone trading 10,000 contracts on a $0.10 option isn't quite the same as someone trading 10,000 contracts on a $10.00 option. While the volume is the same, some may argue they are not necessarily the same liquidity. Indirectly, the "DVO" also applies a heavier weighting to: 1) Higher priced options due to higher priced underlyings and 2) options traded near the money vs. far out of the money (technically, deep ITM options are weighted very heavy too, but the volume on DITM options is typically quite low).

OptionVue does not have a screen purely on volume or OI.

I did find this http://www.marketwatch.com/optionscenter/screener which appears to have a list of "Highest Option Volume Sum"