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Trading Options at Expiration: Strategies and Models for Winning the Endgame (paperback)
Ebook Download Trading Options at Expiration: Strategies and Models for Winning the Endgame (paperback)
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From the Back Cover
"Learn and profit from Jeff Augen's book: It clearly explains how to take advantage of market inefficiencies in collapsing implied volatility, effects of strike price, and time decay. A must-read for individuals who are options oriented."--Ralph J. Acampora, CMT, Director of Technical Analysis Studies, New York Institute of Finance "A fantastic, insightful book full of meticulously compiled statistics about anomalies that surround option expiration. Not only does Augen present a set of effective trading strategies to capitalize on these anomalies, he walks through the performance of each across several expirations. His advice is practical and readily applicable: He outlines common pitfalls, gives guidance on timing your executions, and even includes code that can be used to perform the same calculations he does in the text. A thoroughly enjoyable read that will give you a true edge in your option trading."--Alexis Goldstein, Vice President, Equity Derivatives Business Analyst "Mr. Augen makes a careful and systematic study of option prices at expiration. His translation of price behavior into trading strategy is intriguing work, and the level of detail is impressive."--Dr. Robert Jennings, Professor of Finance, Indiana University Kelly School of Business "This book fills a gap in the vast amount of literature on derivatives trading and stands out for being extremely well written, clear, concise, and very low on jargon--perfect for traders looking to evolve their equity option strategies."--Nazzaro Angelini, Principal, Spearpoint Capital "Instead of considering macro-time strategies that take weeks to unfold, Jeff Augen is thinking micro here--hours or days--specifically the days or hours right before expiration, and harnessing grinding, remorseless options decay for profit. He builds a compelling case for the strategy here. The concept of using ratio spreads plus risk management for as brief a period as one day--open to close--to capture expiring premium is worth the price of admission alone. A superb follow-up to his first book. Must-read for the serious options student."--John A. Sarkett, Option Wizard software Equity and index options expire on the third Friday of each month. As that moment approaches, unusual market forces create option price distortions, rarely understood by most investors. These distortions give rise to outstanding trading opportunities with enormous profit potential. In "Trading Options at Expiration", leading options trader Jeff Augen explores this extraordinary opportunity with never-before published statistical models, minute-by-minute pricing analysis, and optimized trading strategies that regularly deliver returns of 40%-300% per trade. You'll learn how to structure positions that profit from end-of-contract price distortions with remarkably low risk. These strategies don't rely on your ability to pick stocks or predict market direction and they only require one or two days of market exposure per month. If you're looking for an innovative new way to reignite your returns no matter where the markets move, you've found it in "Trading Options at Expiration". Why traditional option pricing calculations always break down in the final days before expirationThree powerful end-of-cycle effects not comprehended by contemporary pricing models Reducing your risk by reducing your market exposureTrading only one or two days each month and avoiding overnight exposureStructuring trades that reflect true expiration-day behaviorLeveraging the surprising power of expiration-day pricing dynamics
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About the Author
Jeff Augen, currently a private investor and writer, has spent over a decade building a unique intellectual property portfolio of databases, algorithms, and associated software for technical analysis of derivatives prices. His work, which includes more than a million lines of computer code, is particularly focused on the identification of subtle anomalies and price distortions. Augen has a 25-year history in information technology. As a cofounding executive of IBM’s Life Sciences Computing business, he defined a growth strategy that resulted in $1.2 billion of new revenue and managed a large portfolio of venture capital investments. From 2002 to 2005, Augen was President and CEO of TurboWorx Inc., a technical computing software company founded by the chairman of the Department of Computer Science at Yale University. He is the author of three previous books: The Option Trader’s Workbook (FT Press 2008), The Volatility Edge in Options Trading (FT Press 2008) and Bioinformatics in the Post-Genomic Era (Addison-Wesley 2005). Much of his current work on option pricing is built around algorithms for predicting molecular structures that he developed many years ago as a graduate student in biochemistry.
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Product details
Paperback: 176 pages
Publisher: FT Press; 1 edition (March 22, 2009)
Language: English
ISBN-10: 0133409031
ISBN-13: 978-0133409031
Product Dimensions:
5.2 x 0.5 x 8 inches
Shipping Weight: 6.4 ounces (View shipping rates and policies)
Average Customer Review:
3.7 out of 5 stars
45 customer reviews
Amazon Best Sellers Rank:
#509,846 in Books (See Top 100 in Books)
The Bottom Line: After reading this book, I was able to learn a few new things, incorporate them into my trading, generate more winning trades, and increase my profitability and income. Since that is why I purchased and read the book, I give it five stars.The book does take a theoretical approach, and is best consumed by someone who understands day trading; technical analysis; options and associated terminology; option spreads, straddles, strangles; option pricing elements including delta, theta, and implied volatility. With that foundation, you will be able to take the author's strategies and apply them to today's opportunities. I would suspect one would encounter difficulty understanding the author without such a foundation. The book explains the authors insights and observations on implied volatility collapse, accelerated time-decay, and pinning. It is up to you to translate those insights into something useful within the context of your trading plans.This bears repeating: if you are seeking a ready-made system or a step-by-step guide, look elsewhere and look to pay a lot more money. (Wouldn't it be nice if you could buy a ready-made system at this price? If there is such a thing, please post the link!) If you are looking for a few invaluable tools to add to your kit that will increase your returns, this is a great book. It explains option pricing behavior in the days leading up to expiration; behavior that is predictable enough for you to build trades to take advantage of it. The more you know what's going to happen, the more money you can make.What did I get from the book? First, the author's detailed description with examples demonstrated the impact of Implied Volatility collapse on the last two few days before expiration; so impactful that it becomes as influential, and sometimes more influential on option prices than the movement of the underlying stock price. As a result, my pre-expiration trades are structured to take advantage of that. Second, I learned about how to build option positions immune to undesirable price movements in the underlying stocks, while still positioned to generate healthy profits in a day or two. As a result, I risk less time in the market and make more money. Third, I learned that periods of high volatility (like now) offer even greater opportunities, allowing me to leverage market uncertainty (fear) for greater profits. As a result, I modify my trading plan to focus on selling options when volatility is high and buying options when volatility is low for greater profitability. Fourth, I learned to emulate the author's approach to studying historical data to gain insights to the future. Knowing that history repeats itself gives me an edge that I can use in the zero-sum game of options trading. (I did not, however, buy any databases, build spreadsheets, or write any programs.)After reading this book (less than $20 for the Kindle version), I am able to accurately predict option pricing behavior in the days just before expiration. I find that information to be invaluable.
This book is very dense and thorough. Although weekly expiry choices are now available the same principles that Augen speaks. The author gathered some very granular data about intraday option prints which is hard to come by historically and really applied it in application for this book. Yes the book does have actionable strategies that experienced option users can apply. This book is not for beginners or even mid level users of options as the comprehension of concepts requires a thorough understanding of many dynamics ranging from extrinsic value compression/expansion, implied volatility crush and general theta decay and being able to loop all these concepts together in sync instead of understanding in singular form is vital to get the value from the book.
The book is VERY interesting, but in an academic sort of way. If you are looking for anything of practical value, look elsewhere.The author has done a lot of work - he collected an extensive (and expensive) historical database of minute-by-minute option prices, and then did an impressive analysis of this historical data. He presents relatively clearly the results of this data mining.The main finding are that "pinning" occurs routinely on expiration day (not a big surprise anyway, and you get no hint how to guess to WHICH strikeprice the pinning will occur, which is THE whole point) and that there seems to be a pattern as to how an option's prices goes to its intrinsic value (if any)over the course of Expiration Thursday and Friday.However, this is about it.There is some vague and general discussion how the results show that it SHOULD be possible to have some edge when trading on the day of expiration and 1 day previously, but no clear strategy emerges.It sounds intuitively appealing that on the last two days before expiration options fair-pricing algorithms can get a little out offocus - just enough for you to exploit. Sadly, this book does not show you how to get this edge.It shows examples that purport to show how the author got an edge trading in the past, but does NOT even spell out clearly which strategies are used.By reverse-engineering the examples given, I derived 6 strategies the author used: - ATM short straddle - Just-OTM Straddle - Ratio-Call (2x and 3X) - OTM ratio call (3x) - Long Straddle).I built two excel models, one for Expiration Friday, and one for Expiration Thursday, where I cut-and-paste the options prices on these two days at various times of the day, and the model then analyzes all combinations for of the 6 strategies I derived from the text and calculates the result of applying these strategies along the lines the book recommends : open a position around 10am, AND CLOSE IT AROUND 2pm-3pm;Sadly I have to report that after trying this for a few months on about 3-5 shares, I found no useful strategy - typically, IF I could guess in advance which strike prices to use, I could get an edge, but there is no pattern that i could find as to which of the 6 strategies would win with which combination of stike prices.(and if I COULD guess which strikes will be "correct" to make for which strategy, I could win on any day, using any strategy ... )For example, on a recent expiration Friday I collected all option prices for AAPL, and analyzed for all 6 strategies:Strategy --> Winning Combination of Strike prices=========== ===============================================ATM short straddle --> Wins for strikes starting One "notch" below ATM and going up to 3 notches above ATMJust OTM Straddle --> Same as above (not surprising - for these strikes, this is the same strategy)3x Ratio Call --> Wins for buying a call at 1-3 strikes below ATM and selling 1-3 strikes above ATM2X Ratio Call --> Same as above (at this strikes, it IS the same strategy)OTM ratio Call --> Same as above (at this strikes, it IS the same strategy)Long Straddle --> Wins for strikes 1-3 below ATM on both legsSo, to win, you have to (1) Correctly select the strategy from the above 6 possibilities and (21) select the correct combination of strike prices to use.If you can do that then You are smarter than me and probably rich enough to not be reading this review anyway ...Another problem, mentioned by another reviewer also, is that Fees and Bid/Ask spreads are ignored - and they are NOT negligible:The typical "win" is on the order of $0.30-$0.40.A round-trip (buy & Sell) fee for a 2-leg position is on the order of $25 (e.g. $12.95 is the minimum fee at OptionsXpress).For a 10-contract position, assuming I win $0.50 per share, the total win will be $500, and just the fees are 5% of that.So - you will have to trade LOTS of contracts, which is not a recommended situation for Risk-management. (A 10 contractposition on a $20 stock is already a $20,000 position)Bid-Ask Spreads make this much worse, and larger positions will not fix them. Assume a bid/Ask spread of $0.25 (not a rare thing) and assume you willbe able to open the position at about mid-point of this, but when you close, you have to pay at the bid/ask (and remember you are closing late in the dayof expiration Thursday or Friday, where even the author says Bid/Ask spreads are likely to widen). So, a round-trip (open/close) will cost you about 50%of the Bid/Ask spread. in this example, this means it costs you about $0.125 per share - leaving you only $0.375 from the $0.50 you were hoping to gain.Add the two effects together, and you find that if all goes well, you will get $350 out of what was supposed to be $500 gain - and again,this is *IF* all goes well ...---I'd give it 3 stars on research quality and interest, but Given the above, I find the title (and the blurb) misleading, and am docking it one star.Bottom line - Academically interesting, but not practical.
Unless I am missing something, this is pretty much the only book on this subject. And what a subject it is. Most option traders are desperate to get out on expiration day if they still hold same month options; this author says this is the day to get in! I plan to use his strategies to see if they work; based on my previous experience, I believe that they will as most options are absolute true value on Friday morning of expiration day and even a small underlying stock price change does impact the option price dramatically. An excellent book, well worth reading. I would have liked to see slighty clearer language and perhaps better summaries at the end of each chapter. However a valuable addition to the subject of options.
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