Jeff Augen Weekly Strats

[Kim 7,421]

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....ons-jeff-augen/

On the contrary, thanks for the link dw.

If we find the backtesting data good, it could be a nice addition to SO portfolio.

[Kelly Park 10]

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.

[Kelly Park 10]

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.

[Marco 221]

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.

[tjlocke99 18]

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

[tjlocke99 18]

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

[Marco 221]

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?

[tjlocke99 18]

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.

[Marco 221]

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

[ChadK 25]

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

[Marco 221]

Great, thanks chad!

[tjlocke99 18]

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.

[Kim 7,421]

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.

[tjlocke99 18]

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?

[Marco 221]

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

[Kim 7,421]

No, not necessarily. But if you allocate 1k per trade, you can buy only one contract of 1k option but 10 contracts of $100 option. And options of higher priced stocks are always more expensive. So to compare, you need the total dollar volume and not just number of contracts.

[ChadK 25]

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"

[Marco 221]

good screen thanks. was looking for sth like that, however prefer your DVO list as this one is heavy with <10$ stocks for above discussed reasons

[Dawajmeister 43]

So I'm trying a very small trade on aapl today, bought the 660/665/670 butterfly for a .45 debit.. we'll keep you updated on how it goes

[Marco 221]

So I'm trying a very small trade on aapl today, bought the 660/665/670 butterfly for a .45 debit.. we'll keep you updated on how it goes

looks a bit low, what exactly did you trade?

[Dawajmeister 43]

bot 2 660 puts

sold 4 665 puts

bot 2 670 puts

[Marco 221]

ah you have 5$ space, Augen did 10$ but even the 10$ one is ~1.60 vs. the 2.40 or so in his webinar. Looks like IV is much higher since then

[tjlocke99 18]

So I'm trying a very small trade on aapl today, bought the 660/665/670 butterfly for a .45 debit.. we'll keep you updated on how it goes

be careful. did you accidentally enter the 24 Aug expiration? You need the 31 Aug.

Richard

[dwilliams8649 4]

So I'm trying a very small trade on aapl today, bought the 660/665/670 butterfly for a .45 debit.. we'll keep you updated on how it goes

I got in on the same trade... but at a .42 debit. I went in at the 5 point strike as well. During backtesting I got "quicker" results with the 5 point strike... quicker, as in I was able to close out the trader faster at my predefined T/P. But I intend to do a longer testing time period to get a better/more valid comparison.

[cwelsh 1,496]

So I'm trying a very small trade on aapl today, bought the 660/665/670 butterfly for a .45 debit.. we'll keep you updated on how it goes

I hope it goes well, personally I would have waited for a few weeks (at least) of testing. One of my biggest points of advice to anyone trading is don't ever rush into a trade, once your capital is gone, its gone. Who cares if you miss a big trade or too, if the strategy is sound, you'll have another.

[cwelsh 1,496]

Well, what I'm learning is (a) this trade is "cheaper" than I thought it would be, ( there is virtually no movement in the price between the time of entry and 30 minutes before close, © there is going to be slippage, (d) most surprisingly, the different strikes seem to be priced the same.

For instance, the AAPL 660/665/670 (if entered at 9:00 CST) and 665/670/675 (if entered at 9:30 CST), are both priced exactly the same -- currently. In other words, as of right now, if you had entered the 665/670/675, you would have no gain, even with 5 pts of movement.

Anyways, to those participating in data collection, DONT send me your results until close tomorrow, just keep monitoring.

[fieldydwb 31]

I've been monitoring 7 different ones and noticing the same thing. Flat across them all.

[Marco 221]

So I'm trying a very small trade on aapl today, bought the 660/665/670 butterfly for a .45 debit.. we'll keep you updated on how it goes

we were discussing spreads and slippage earlier - do you remember the bid offer when you did the trade? How much over mid did you pay?

[Marco 221]

Well, what I'm learning is (a) this trade is "cheaper" than I thought it would be, ( there is virtually no movement in the price between the time of entry and 30 minutes before close, © there is going to be slippage, (d) most surprisingly, the different strikes seem to be priced the same.

For instance, the AAPL 660/665/670 (if entered at 9:00 CST) and 665/670/675 (if entered at 9:30 CST), are both priced exactly the same -- currently. In other words, as of right now, if you had entered the 665/670/675, you would have no gain, even with 5 pts of movement.

? we're talking about long butterfly here aren't we? (long wings short body) so a move is bad (5 points clearly not a problem yet) ....

[csensen13 1]

Am I wrong or does the 660/665/670 fly look like it could be sold for about 0.75 now, meaning roughly a 60% profit from the 0.45 entry point?

[dwilliams8649 4]

Well, what I'm learning is (a) this trade is "cheaper" than I thought it would be, ( there is virtually no movement in the price between the time of entry and 30 minutes before close, © there is going to be slippage, (d) most surprisingly, the different strikes seem to be priced the same.

For instance, the AAPL 660/665/670 (if entered at 9:00 CST) and 665/670/675 (if entered at 9:30 CST), are both priced exactly the same -- currently. In other words, as of right now, if you had entered the 665/670/675, you would have no gain, even with 5 pts of movement.

Anyways, to those participating in data collection, DONT send me your results until close tomorrow, just keep monitoring.

Well... I think that was the point Augen was trying to make^^, the trade is pretty well hedged against small movements.

[Dawajmeister 43]

be careful. did you accidentally enter the 24 Aug expiration? You need the 31 Aug.

Richard

No I'm on Aug5

[Dawajmeister 43]

Am I wrong or does the 660/665/670 fly look like it could be sold for about 0.75 now, meaning roughly a 60% profit from the 0.45 entry point?

No I'm showing a mid of .45

[Dawajmeister 43]

And I have a limit sell at .68

[dwilliams8649 4]

And I have a limit sell at .68

I have a GTC at .65... I think we're on the same page here.

[csensen13 1]

sorry, I was looking at the wrong week - oops - would have been nice though

[dwilliams8649 4]

we were discussing spreads and slippage earlier - do you remember the bid offer when you did the trade? How much over mid did you pay?

I went below the mid and started moving up until I got a fill... the mid tends to jump a lot in the morning...

[Marco 221]

I went below the mid and started moving up until I got a fill... the mid tends to jump a lot in the morning...

do you mind telling me the time of the fill? can see b/o at the time then. thx

[dwilliams8649 4]

do you mind telling me the time of the fill? can see b/o at the time then. thx

10:08:56 PM

[Marco 221]

10:08:56 PM

looks like is was ~ .10 / .65 then so say .33 mid and 10-12 cents slippage. Quite a lot if you double that for the round trip.

[dwilliams8649 4]

looks like is was ~ .10 / .65 then so say .33 mid and 10-12 cents slippage. Quite a lot if you double that for the round trip.

I am not sure if that would be a fair test, as the mid did go down to .33/.32 at some points, but for maybe a few seconds, and would jump back up to .45 to .50.

[Marco 221]

I am not sure if that would be a fair test, as the mid did go down to .33/.32 at some points, but for maybe a few seconds, and would jump back up to .45 to .50.

guess that's something we won't find out with paper trading - how much you have to pay away to get in/out. Looking at the MID chart from IB (was looking at b/o before and with the larger scale I think I got the mid a bit low) looks like mid was more like .38-.39 in the morning so more like 6c slippage or so. Still if it comes to 2 x 0.06 slippage plus 0.06 commission you need 18c or 40% to break even!

[cwelsh 1,496]

Again, I'm going to share allllllllllllll the data with everyone. However, on AAPL, pretty much from open to close, on the 660/665/670, the price bounced from a low of -0.05 (yes -0.05) to a high of .80 (at the time stamps I looked at, tried to take every 15 minutes, occasionally missed).

I am interested to see how this performs tomorrow, because the various strikes are all priced about identical right now, as TV erodes, that should change.

[Marco 221]

Again, I'm going to share allllllllllllll the data with everyone. However, on AAPL, pretty much from open to close, on the 660/665/670, the price bounced from a low of -0.05 (yes -0.05) to a high of .80 (at the time stamps I looked at, tried to take every 15 minutes, occasionally missed).

I am interested to see how this performs tomorrow, because the various strikes are all priced about identical right now, as TV erodes, that should change.

yep, I cut off that crazy moves off the first minutes in above graph. That's just the function of a very wide bid offer though - no one will fill you at -0.05 or even +0.05 for a spread that could be worth 0.00 at worst and 5.00 at best.

It makes sense to me that all the flys with centers say up and down 10$ from spot (on AAPL) have pretty much the same price. In fact Augen says that's the case in the Webinar, or you can stick it in an option pricer and move spot and you'll see that with 8 days to go the fly isn't too sensitive to small(er) spot changes. That's supposed to be one of the selling points for this strategy: the underlying has to move quite a bit over one day for this to make more than 50% loss.

[Dawajmeister 43]

as for waiting for paper trading... that's why I went with a small position <$100... to me this is like playing black on the roulette wheel... plus I feel like you learn more when you are actually in the trade (whatever the amount) then doing it on paper... although paper testing is very important also

[tjlocke99 18]

My problem is the times I have tried to use IB for paper trading, I found that I could not get a trade to executed unless I was buying at the ask or shorting at the bid. Therefore I found it pretty much useless. Perhaps some of the other platforms like TOS are better.

Why can't this trade be -.05 or even a larger negative number? The negative value of the short strikes in the middle can be greater then the combined value of longs in the wings can't they? Its not likely but isn't it possible?

Also, I think Marco has had some great points about adding in the bid/ask slippage and broker transaction costs and showing how profit is significantly effected.

[Marco 221]

as for waiting for paper trading... that's why I went with a small position <$100... to me this is like playing black on the roulette wheel... plus I feel like you learn more when you are actually in the trade (whatever the amount) then doing it on paper... although paper testing is very important also

yep with you there. trading it in 1 lot will be more realistic than paper trading. I'm happy you're doing this but I think I too would have waited a couple of weeks or so to see what results the paper trading shows.

[Marco 221]

Why can't this trade be -.05 or even a larger negative number? The negative value of the short strikes in the middle can be greater then the combined value of longs in the wings can't they? Its not likely but isn't it possible?

worst case at expiry for this is to be worth 0. If you can pick it up for a credit (-0.05 or lower) you do that and hold it to expiry for a min profit of 5c. So no one should sell it to you at -0.05 unless he feels very charitable.

[Kim 7,421]

Here is the chart of SPY long butterfly initiated last Thursday with SPY around 141:

It could be initiated at 2.25. The price fluctuated between 2.05 and 2.30 on Friday, went to 2.35-2.40 on Monday, was as low as 1.85 on Tuesday (18% loss) and then started to climb. It reached 2.85-2.90 on Wednesday and 3.20-3.25 on Thursday. So if deadline to close is Wednesday, it was 25% gain, and on Thursday it could be closed for 45% gain. I personally would not wait till Thursday - the negative gamma becomes too large.