Jeff Augen Weekly Strats

[Guest]

Well we're getting close to market close and my 660/665/670 bfly is sitting pretty much breakeven. We'll see what Monday brings.

[Guest]

With all due respect to Augen, I think this is right a large part of the time. However, I REGULARLY sell weekly ICs to capture, what I view as, mispriced risk. I just did such a trade on AAPL today, and I've been very successful doing it.

However,I do run my only STD calculations, as well as do an overall market risk analysis. If I can't get at least a 10% return (my guideline) on a MORE than 2SD trade, I won't do it.

If risk on the weeklies was really that mispriced, we could make a killing just buying ATM straddles or ATM RICs -- but we can't -- that's a consistent loser.

When you said you did such a trade on AAPL, do you mean you opened up an iron condor that expires next week? or was it expiring today?

[Guest]

Chris, my data is in your PM inbox. I tried to attach it as an Excel spreadsheet but the forum has those blocked apparently. I sent it as a PDF but if you want it in a different format just let me know or shoot me your e-mail address.

Thanks for compiling all this for us....Scott

[Guest]

Next week.

And as far as "holding to next week," that was not the strategy, the strategy was to get out on Friday before the weekend risk.

I can say right now the trade did NOT work on AAPL (never moved in price really, would have been a BE, minus slippage and minus commissions)

Did NOT work on LNKD (actually resulted in about a .50 loss, not counting commissions or slippage)

Did NOT work on GLD (actually resulted in a loss, and was so lowly priced, commissions would have made it impossible anyways).

And these were in "Ideal" conditions -- the price barely moved over the two days.

I really need to go watch his video, because either I'm missing something, or this is not reliable. I was NOT expecting to go 0-3, and in a major way.

[Guest]

Further update -- it did work on AMZN and did not work on GOOG

[Guest]

I followed seven or so trades. RUT was profitable, AAPL for me was also ..but I used different strikes.

The rest were not. I'll provide updates to you via PM

[Guest]

Is it due to broad market low vix that makes this strat not working well this week?

[Guest]

Chris I somehow messed up the Opening Bids on the very top. Corrected version coming to you now. The data itself was correct however for the 9:30 timeframe.

Thanks -- Scott

[Guest]

Basically he's saying that sellers are not compensated for the amount of risk that they must take upon themselves during that one week period. Part of the reason for this is because weekly options are not used when calculating the VIX. So actually volatility might be higher than the number the VIX states. The higher the VIX the higher the price of options. So normally you want to buy cheap sell high. But people who sell time decay on weekly expiring options are selling "cheap". So Augen says that we should take the other side of the trade and buy from the "foolish" sellers who are trying to sell time decay through weekly expiring options.

I don't get that analysis though. The long butterfly opened on Thurs at 1000 and closed before the Friday close IS selling the weekly and making money off decay. Exactly what he is saying is foolish.

[Guest]

Next week.

And as far as "holding to next week," that was not the strategy, the strategy was to get out on Friday before the weekend risk.

I can say right now the trade did NOT work on AAPL (never moved in price really, would have been a BE, minus slippage and minus commissions)

Did NOT work on LNKD (actually resulted in about a .50 loss, not counting commissions or slippage)

Did NOT work on GLD (actually resulted in a loss, and was so lowly priced, commissions would have made it impossible anyways).

And these were in "Ideal" conditions -- the price barely moved over the two days.

I really need to go watch his video, because either I'm missing something, or this is not reliable. I was NOT expecting to go 0-3, and in a major way.

If you read Jeff Augen's books, like his Excel book, he says that strategies that exploit anomalies exist temporarily until many people figure them out and then that causes the anomaly to go away. He seems to advocate a style of learning how to analyze and then figure out on your own what will be profitable for some period of time.

Now the point would be that this butterfly strategy is now published, and I would wonder if it WAS but is no longer a viable strategy.

Additionally my point earlier was that if your ITM position is only 5 points out that it still has alot of extrinsic value. That extrinsic value will also decay along with your ATM shorts and OTM long. Therefore it may be better to structure that ITM long deeper ITM, like 10 points.

[Guest]

I don't get that analysis though. The long butterfly opened on Thurs at 1000 and closed before the Friday close IS selling the weekly and making money off decay. Exactly what he is saying is foolish.

Well... As I was explaining in previous posts... the strategy makes money off of IV collapse from the market makers efforts to price in the weekend time decay into the option prices. Market makers do not want to hold onto a position that's going to loss value my Monday morning (all else held equal). Let's say the long butterfly is trading for $1.40 (about 4 hours before market close on Friday) and the weekend time decay is worth .50c. Then by market close on Friday (and all else held equal) the option should be priced at $1.90 or greater.

[Guest]

Further update -- it did work on AMZN and did not work on GOOG

Report on AMZN and GOOG Trade.

My understanding of the trade is "Buy Aug. 31 fly centered at ATM on Thurs. morning when the Price of the shares is closest to the relevant ATM. Sell just before the market close on Fri."

Neither trade was profitable last week.

Time Price Option Option mid price

AMZN GOOG AMZN GOOG AMZN GOOG

10:15 240.3 671.5 230/-2*240/250 660/-2*670/680 3.99 2.20

11 243 (high) 4.10 1.95

12 679 (high) 4.00 2.00

13 239.1 (low) 4.17 2.00

14 4.20 2.00

15 4.24 1.65

15:50 4.24 1.90

09:35 243 (low) 675(low) 4.0 1.95

10 3.70 2.10

11 647H 3.05 1.90

12 680H 3.10 2.00

13 3.05 1.95

14 3.20 1.85

15 3.33 1.95

15:50 3.40 2.10

[Guest]

sorry. The table was transposed in transit. Anyway, both trades would have posted a loss although the share prices did not move very much.

[Guest]

Well, I'm going to check these one more week, by going wider (instead of 5 pts, going to 10). However, I no longer have boundless optimism for this trade -- as virtually every single one of them would have lost money.

SPY did not, and AMZN did not -- though both of those could have depending on your entry points (that's always the case though isn't it?)

The fact that we had "perfect" conditions for this trade on AAPL, GOOG, PCLN, GLD, LNKD, MA, NFLX, and MNST -- and would have lost money on all of them is not that inspiring.....

(However this does not mean I did not learn anything -- there was some very interesting option price movement in AAPL, NFLX, and GOOG over the last 4 hours of the trades, I'll elaborate in another couple weeks when I have more data).

[Guest]

Thanks for the update Chris. I wasn't too excited either as I monitored GOOG and AMZN. I'll be curious to hear your analysis when you have time. If you need help with anything this week let me know, IB makes it very easy to chart combos without having to watch it every second.

Thanks -- Scott

[Guest]

And for those who held the AAPL butterfly...and not on paper....ouch

[Guest]

And for those who held the AAPL butterfly...and not on paper....ouch

Actually I was able to get out at .52 this morning... went in at .42.

[Guest]

For

Well, I'm going to check these one more week, by going wider (instead of 5 pts, going to 10). However, I no longer have boundless optimism for this trade -- as virtually every single one of them would have lost money.

SPY did not, and AMZN did not -- though both of those could have depending on your entry points (that's always the case though isn't it?)

The fact that we had "perfect" conditions for this trade on AAPL, GOOG, PCLN, GLD, LNKD, MA, NFLX, and MNST -- and would have lost money on all of them is not that inspiring.....

(However this does not mean I did not learn anything -- there was some very interesting option price movement in AAPL, NFLX, and GOOG over the last 4 hours of the trades, I'll elaborate in another couple weeks when I have more data).

In Augen's webinar he did mention that he would hold some positions until close Tuesday. I really think that we are giving up on this strategy too soon. Another thing that I think we're forgetting is that the "perfect" condition would be a decline in IV rather than a dormant price (although it helps). For example, I was able to close out AAPL long butterfly (660/665/670) today (live trade) at .52, I went in at .42, even though the stock jumped $17 from Friday's close. Next time I will most likely do a 10 point strike spacing, as too much is taken up in commissions with a 5 point spacing.

Edited August 27, 2012 by dwilliams8649

[Guest]

The AMZN spreads I tracked are around Breakeven for the $10 Spread and losing about 19% after commissions on the $5 at the moment. The GOOG spread however is up 64% after commissions on the $5 Spread and up 19% AC on the $10 if anyone's curious (I'm calculating commissions at .75 per contract).

Edited August 27, 2012 by Xfanman

[Guest]

So my AAPL closed today.. I was in at .45 out at .55.. I had a very small position so with comms. on TOS it was basically a $1 gain. I am going to try with the 10 pt spreads Thursday.

[Guest]

Actually I was able to get out at .52 this morning... went in at .42.

It was interesting I started showing gains, after it was well above the outside bfly.

[Guest]

waiting until friday speech to enter this week.

[Guest]

Volley, do you know what time is his speech?

[Guest listolyman]

10am edt i think.

[Guest]

Small position in the 655/665/675 for 2.17...

[Guest]

Kim, dwilliams, cwelsh and all, help me out here. I went through Jeff's presentation on the short butterfly and it doesn't seem to make sense to me. The example he used is to sell the butterfly at 1 pm, getting a credit of $3.54. He chose the 615/620/625 strikes for AAPL, meaning that he is short the 615, long the 620, and short the 625. An hour later, the credit becomes 3.8, and 2 hours later it becomes 4.15. If he entered at a credit of $3.54, and it moves to $4.15, thats a loss of about $0.59. Is he saying that he wants the price to move outside the short strikes in the last hour???? I must be missing something here.

[Guest]

Kim, dwilliams, cwelsh and all, help me out here. I went through Jeff's presentation on the short butterfly and it doesn't seem to make sense to me. The example he used is to sell the butterfly at 1 pm, getting a credit of $3.54. He chose the 615/620/625 strikes for AAPL, meaning that he is short the 615, long the 620, and short the 625. An hour later, the credit becomes 3.8, and 2 hours later it becomes 4.15. If he entered at a credit of $3.54, and it moves to $4.15, thats a loss of about $0.59. Is he saying that he wants the price to move outside the short strikes in the last hour???? I must be missing something here.

he does it all with calls (buy the 95 call, sell 2x 100 call, buy 105 call) so the net is a DEBIT trade and you want the price to go up to make a profit.

You can structure is as a credit trade (buy 95 Put, sell100 Call, sell 100 Put, buy 105 Call for example) then you end up with a credit and want the price to go down. Other than that its the same thing though (same payout profile)

[Guest]

Marco,yes, I understand what you are saying and agree with you....... but look at Jeff's presentation.....when he talks about the short butterfly, he is selling the middle strike...and buying the outer strikes, getting the credit. In the presentation, he shows that credit rising, which would mean he is losing money. Thats the part I don't get.

[Guest]

Ah sorry, you talk about the SHORT butterfly that Augen suggest to do on Fridays with just a couple of hours to go (so the opposite of the Long butterfly I described earlier).

In above slide he doesn't enter the trade at 13:00 @ 3.54 but says wait til 15:00 (one hour before the close) when the credit is 4.15 and your max downside is 0.85 but a small move away from 620 in that example will lower the credit and make you a profit. Your breakeven move is 0.85 in that example - if it move more than that away from 620 you make money, If it stays pinned at 620 the credit will go further up (to max of 5.00$) and you lose money.

Edited September 1, 2012 by Marco

[Guest]

Ok, thanks. I didn't get that part....wait till last hour to enter. Looks like a gamble!

[Guest]

A GENRAL POINT: These trades are not as rigid interms of times of entry as suggested by some of the posts above..(see Augens articles on SFO).

Report on AMZN and GOOG Trades.

Strategy 1.. (see Augens articles on SFO):On Thursday morning, When the share price is at ( or close to) an option point, Buy weekly fly centered at the relevant share price. Sell shortly before the close on Friday.

On Sep. 30, AMZN price was closest to 250 at 10:00 AM, so buy 245/-2*250/255 @1.02. Sell @ 1.20. near close Friday.

GOOG: price was closest to 685 at 9:55. Buy 675/-2*685/695 @2.48. Sell @2.67.

Both trades were potentially profitable IF you could buy and sell @ midpoint. However, bid/ask spreads were quite wide for all trades, so a considerable slippage was likely, reducing the profit.

Strategy 2: On Friday, when share prices are at (or close to) an option point price, SELL the weekly expiring fly centered at the relevant price. Buy back close to expiration, or when the price approaches the next option point.

AMZN: at 10:10 SELL 240/-2*245/250 @ 2.80. Buy at the close @1.60 . Could sell earlier @1.15.

GOOG: 10:35 SELL 675/-2*685/695 @6.65. Buy at the close @8.50. Could get out @6.50 earlier.

Clearly, AMZN trade very profitable, but GOOG very unprofitable, although the loss could be small if you are very nimble.

[Guest]

Thanks so much for your comments. I didn't realize Jeff wrote in SFO Weekly. I am digging out all his articles!

[Guest]

Well

A GENRAL POINT: These trades are not as rigid interms of times of entry as suggested by some of the posts above..(see Augens articles on SFO).

Report on AMZN and GOOG Trades.

Strategy 1.. (see Augens articles on SFO):On Thursday morning, When the share price is at ( or close to) an option point, Buy weekly fly centered at the relevant share price. Sell shortly before the close on Friday.

On Sep. 30, AMZN price was closest to 250 at 10:00 AM, so buy 245/-2*250/255 @1.02. Sell @ 1.20. near close Friday.

GOOG: price was closest to 685 at 9:55. Buy 675/-2*685/695 @2.48. Sell @2.67.

Both trades were potentially profitable IF you could buy and sell @ midpoint. However, bid/ask spreads were quite wide for all trades, so a considerable slippage was likely, reducing the profit.

Strategy 2: On Friday, when share prices are at (or close to) an option point price, SELL the weekly expiring fly centered at the relevant price. Buy back close to expiration, or when the price approaches the next option point.

AMZN: at 10:10 SELL 240/-2*245/250 @ 2.80. Buy at the close @1.60 . Could sell earlier @1.15.

GOOG: 10:35 SELL 675/-2*685/695 @6.65. Buy at the close @8.50. Could get out @6.50 earlier.

Clearly, AMZN trade very profitable, but GOOG very unprofitable, although the loss could be small if you are very nimble.

Well, this does put a bit of a turn on things. For the GOOG fly I would've used a 5 point strike spacing though.

[Guest]

Well

Well, this does put a bit of a turn on things. For the GOOG fly I would've used a 5 point strike spacing though.

I tried to keep the spacings approximately equal in relation to the share price. In any case, the results would have been very similar for a $5 spacing.

[Guest]

Entered the AAPL fly last Friday for 655/665/675 for 2.24 sold for 2.53 this am for 13%.. This includes commissions, so w/o comm (I am on TOS) probably another 2-3% gain.

[Guest]

Did the calculations lost .07 on commission each way.. Would have been less on IB.

[Guest]

Entered this afternoon on the 670/680/690 long bfly for 1.63, wanted to wait till after the jobs report and took a while to get filled

Underlying was 680.

Edited September 7, 2012 by Dawajmeister

[Guest]

Volley, when are you thinking of exiting? I tracked a similar trade today on AAPL and there didn't seem to be any profits at the close.

[Guest]

There was a short period the trade was up very minimally. I'll hold as long as Tuesday close. I lower my profit target as monday and Tuesday roll along

[Guest]

I tested AMZN since Feb until present using the long butterfly strategy. I used Option Vue backtesting to get prices every half hour. It showed that the most profitable was to enter at 930 on Thurs and exit at 3:00-3:30 pm on Friday. I omitted earnings week as well as the week prior and the week after. I also removed any week where the price of the butterfly/volatility was significantly higher than normal. The outcome to date was 12.14% and $25k profit assuming $10k played each week.

I attached a screen shot of the results. Perhaps Chad or someone that has Option Vue can verify a few of my prices. I used market pricing so that takes care of slippage but this does not include commissions.

[Guest]

fieldy, are you saying that 12.14% was the average return per trade, and that you have a 250% profit from using $10K? Thats a very good return if one can tolerate the $2K losses every now and then.

[Guest]

Yeah, that's what AMZN shows since Feb. Going to do the same test for AAPL, GOOG and a few others.

[Guest DShaver]

Well I saw how volatile AMZN was today and decided to do the long butterfly, sell the mid buy the outside, hoping for movement. Didn't realize until now that I actually scalped the trade. Sold for 3.04 credit at 12.26.18 EST, bought back for 2.50 debit at 1228.38EST For a 17.8% return, awesome, even if it was probably luck.

[Guest]

I did the same thing for AAPL from Feb 2 to Aug 30.

Rules:

-I did not play the three weeks around earnings.

-I cashed out as soon as I hit 17.5% ROE

-I did not trade when the price of the butterfly was 20% of the preceding 5 weeks

The results were good.

-An average ROE of 8.14% with a net of $17,095 assuming 10k a play.

-I entered 21 weeks of 30 possible.

-Of the 9 non entered, 7 were around earnings and 2 were to highly priced

Generally the best time to exit was at 15:30 on Friday.

[Guest]

I did the same thing for NFLX from Feb 2 to Sep 06.

Rules:

-I did not play the three weeks around earnings.

-I cashed out as soon as I hit 17.5% ROE

-I did not trade when the price of the butterfly was 20% of the preceding 5 weeks

The results were again good.

-An average ROE of 11.02% with a net of $27,553 assuming 10k a play.

-I entered 25 weeks of 31 possible.

-Of the 6 non entered, 5 were around earnings and 1 didn't have the available strikes needed.

-There was one anomaly on Mar 1 where we purchased a butterfly for 1.71 and it could be sold for 3.78 3pm on Friday. I don't know if this is some sort of mistake in the data or not.

-The last 15 plays only produced 3.1% average return or $310 per 10k before commissions. However, the last 6 plays returned 6.36% or 636 on $10k.