See http://www.smbtraining.com/blog/rec...n-introduces-the-weekly-short-butterfly-trade which is a very good webinar (I thought) on how Jeff Augen makes money on the weekly options on individual stocks trading on the long side of volatility. Jeff says that weekly options can readily be found that are underpriced, because so many people are selling volatility on them using condors etc. He has given similar talks in the past, that we have mentioned here, but I think some will find this new one useful.
I am curious if anyone tried to put those postions and how did it work out . with the exception of Tuesday 08/27 AAPL was very flat and this position would have lost money . Anybody is experimenting stops , other ways to make this work plz let me know
I took a small flyer on the AAPL AugWk4 495/500/505 put butterfly in the last hour of trading last Friday. Sold it for $355.17, bought it back near the close for $388.53. Lost some $33 on the trade. The stock did make the predicted move, just not quite far enough to turn a profit. I think it's an interesting strategy. I'll probably try it again tomorrow with similar size trades on AAPL and GOOG.
Jimmy or anyone elth , any luck with those short butterfly on Friday . I looked at the charts at the end of the day and I see where appl hit 490 arround 10.35 and then moved to 487 area around 11.50 . I am thinking if I put an order to excute the short butterfly on think or swim once the stock hit that round number , that might work .. didn't try it in practice
What I liked the most from the video was the comment that a lot of small gains can constitute a viable trading strategy. Putting on a short butterfly late on the last day may have a good reward/risk ratio, but likely a pretty low win rate. Day trading earlier in the final week sounds much better to me. The short butterfly is a good trade to hold through expiration, according to Augen in The Volatility Edge. I am wondering if a long straddle or strangle might work better for day trading earlier in the week? How would a long straddle compare with a short butterfly for the same setup, for example, opened early and closed late Monday of expiration week?
Couldn't the long straddle just be viewed as a special case of the short butterfly in which the wings are (infinitely) far out? In other words, either position includes a long straddle, but you may or may not wish to avoid paying for a very extreme move by limiting what you are paying by clipping your targets with the outer short legs. By the way, he also mentions ratio backspreads as another possible trade early in the webinar.
Augen talks about ratio backspreads pretty extensively in Trading Options at Expiration. They're less market-neutral, but they work especially well when there is news, such as earnings. I think that was Augen's best book. I tried that trade and killed it on my first try. Unfortunately, earnings only happen quarterly. I'm looking to hit singles, not home-runs. A short butterfly is a bull spread plus a bear spread with the long options at the same strike. A short iron butterfly is a long straddle with short wings. It's my understanding that the two should perform about the same. Correct? So as a thought experiment, what are the advantages/disadvantages of adding short wings to a long straddle? If you hold the fly to expiration, your cost turns into a credit, and you get favorable time decay on the wings. With a big enough move, there is nothing to liquidate. Nice. But if you daytrade the fly, the disadvantages are extra slippage and commissions and limited profit potential. I haven't tried this trade yet, but the straddle (or strangle) feels easier to open and close, especially when you're doing lots of them. That's worth something.
Being long vol is generally about being long the unlikely event. If you have a reason to be long vol then (with some exceptions) there should be no reason to sell convexity in that name (the most sensitive options to that unlikely event)
The chance of being exercised on the short portion(s) of the fly is.......nonexistent??? Last in...First out?