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Well, I listened to Jeff Augen's webinar. He toted a weekly strategy that he claims has a 90% and above success rate. His reasons on why this trade is so successful are: Increased market (makers) efficiency in regards to pricing options to encapsulate weekend time decay. According to Jeff, two years ago, it was around 50%. However, within the last year, over 90% of weekend time decay is priced into the options my market close on Friday. The foolish retail investor who tries to sell time decay on weeklies in order to make the quick buck. High index like liquidity of some stocks, such as AAPL. He gave an example using AAPL and AMZN, however, he says these strats will also work on indices. So without further delay... The two strategies that me mentions in order to take advantage of the above are: A long butterfly & A short butterfly Well, sounds simple enough. But like with everything else, timing is key. 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 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. Well, on my backtesting, I had a very high success rate. I used OnDemand in TOS. I would like to double check the results using another service like OptionVue. But I found it quite hard to lose money. I guess if the stock had a really high open (in the case of AAPL it if the stock gaped up 15 dollars), then we would have to take one for the team. Another thing that I noticed, is that usually I could take the trade off the table by around 10-11 on Friday, with profits. And only on a rare occasion did I have to hold it over the weekend (once, out of over 20 trials). For the second strategy, the Short butterfly Augen suggests the following. Entry Day: Friday expiration day on Weeklies (day 0). Entry Time: Approx 1pm. Trade criteria: A reasonably volatile stock, such as, you guessed it, AAPL. Exit: Well, basically he assumed that within those three hours, that most likely the stock would be ITM or close to it. He didn't give many details, but promised to come back and go into the trade further in another session. Again, using TOS OnDemand, I found that the trade did work as advertised. For my purposes, however, if the trade wasn't profitable after 1 hour, I would do an adjustment by selling another butterfly in the strike right below (upward trending market) or right above (downward trending market) the middle strike of the currently held short butterfly. This reduced my overall exposure and made it easier to profit in the currently trending direction. Well, that's it... The whole process seemed to good to be true, so I am not sure if there is something wrong with the way TOS OnDemand works in these cases, or if the strategy is really this profitable. However, according to Augen, it's supposed to be. Kim (and forum members) please give your commentary, and test this out as well if you can. The only thing that troubled me slightly during the webinar is that when Augen said that he completely gave up on trying to predict the direction of the market and that doing so is a fools game. He would much prefer to hold cash, and trade such strategies (anomalies) when they appear. However, he did talk briefly at one point about some of his indicators (I am assuming the ones that he built) that his subscribers use to predict the bottoms and tops (basically, the direction) of the market or a particular stock. -DW [update] They upload the video to their site... http://optionstribe.com/2012/08/recording-of-how-to-capitalize-on-price-distortions-in-weekly-options-jeff-augen/

You will never* have any problems with liquidity on SPY, AAPL, or the large options -- there's enough market makers that you'll be able to trade. You might have to chase a price, or if there's a suden move get a fill you don't want, but liquidity is simply not a problem. There are firms that literally trade hundreds of thousands of contracts on those instruments. On the lower liquidity ones -- take notes. Some might only have an OI of 10 contracts, but there is six market makers competiting, and you get a fill at a much better point than the midpoint. My general rule of thumb is on low OI options, that i have not traded before, I ease into. Yes you pay more commissions the first go around, but you learn about it. Also ALWAYS start near the bid -- you might be suprised and get a fill, and then slowly adjust up to the midpoint, or just over. Pay attention to how long it takes to get the order filled, how long it sits there, the way the price moves on the spread as soon as you enter the trade. Also as a general rule, the wider the spread, the less likely you'll be able to easily get in and out (getting out is always harder). But again, simply because there is low OI, does not mean that it is not a tradeable instrument. The ones you have to watch for are the $10.00 stocks with a $2.00 spread on the ATM options. I wouldn't touch that with a ten foot pole. But if you have a $10.00 stock with only 2 contracts of OI, but the ATM straddle spread is only 0.05? You might be suprised how liquid it is. HOWEVER, that said, still ease in....you might get an instant fill at the best possible price, but have a hell of a time getting out. That's why trading logs are so important, you learn about the options you trade -- and the better feel you get for them the better.

Excellent question. There is no firm answer to that question. Higher allocation is definitely not an issue for high volume stocks like SPY, AAPL, CSCO, GOOG etc. Our last few stocks had less volume and OI. I think it really depends - some stocks will be easier to trade, some will cause issues with fills. While volume and OI will give you a good indication about liquidity, sometimes even with smaller OI you will get decent fills, and vice versa. In general, I would not trade more than 10-15% of OI. I think you can do few things: 1. Trade less size for less liquid stocks. 2. Set your own entry/exit targets - this is probably the most important. 3. Trade different strikes. 4. Trade different expiration - if I trade weekly, you can go for a monthly and vice versa. 5. In general, I do not recommend to chase, but if you still see good value, sometimes it's okay to go 1-2% higher than my entry. In some cases, you can just set different targets than me and exit before my alert. Over long term, it should level out. 6. Patience is a key. Many times the price will calm down after the initial spike. It might still be slightly higher than my alert, but with some patience, you might pay only 1% more instead of 2-3%.

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.