Trading Options at Expiration PDF (Strategies and Models for Winning the Endgame) As that moment approaches, strange market forces and price distortions arise: behaviors that have been little understood by investors, until now. In this book, leading options trader and innovator Jeff Augen illuminates those behaviors and provides specific, proven strategies for profiting from them.
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Author: Jeff Angen
Free download link: At the end of the post
On the third Friday of every month, equity and index options expire. As that moment approaches, strange market forces and price distortions arise: behaviors that have been little understood by investors, until now.
In this book, leading options trader and innovator Jeff Augen illuminates those behaviors and provides specific, proven strategies for profiting from them. Investors who master these strategies won’t just be able to generate exceptional profits: they can do so with only one or two days of market exposure each month. Until now, the few investors who have understood this opportunity have either kept the information confidential, charged high prices for consulting or subscription services, or trade privately for hedge funds.
In this how-to guide, Augen explains the opportunity, and shows exactly how to take advantage of it. You’ll learn why traditional option pricing calculations, based on volatility and time decay, break down when options are about to expire. Augen explains why this inevitably leads options to be mispriced during the final few days. Next, he shows exactly how to exploit this situation, by structuring positions that take advantage of these price distortions to deliver outstanding profits with very little risk. Augen’s strategies are direction-neutral: they don’t rely on your ability to pick stocks. Best of all, Augen’s trades return anywhere from 40% at the conservative end to 300% at the high end, all for one day of investing per month.
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 expiration
Three powerful end-of-cycle effects not comprehended by contemporary pricing models
- Reducing your risk by reducing your market exposure
Trading only one or two days each month and avoiding overnight exposure
- Structuring trades that reflect true expiration-day behavior
Leveraging the surprising power of expiration-day pricing dynamics
Table of Contents- Trading Options at Expiration PDF
Introduction and Explanatory Notes 1
Some Notes About the Data 5
Working with Minute-by-Minute Data 7
Additional Notes Regarding Collateral
Requirements and Pattern Day Trading Rules 10
Chapter 1: Expiration Pricing Dynamics 13
Market Forces 14
Implied Volatility Collapse 15
Strike Price Effects 26
Time Decay 41
Sample Trade Structures 46
Chapter 2: Working with Statistical Models 55
Different Populations 55
Selecting Candidates 60
The Evening before Expiration 88
Chapter 3: Day Trading Strategies 105
Expiration Thursday 105
Simultaneously Profiting from Stock Movement and Volatility Decay 120
Overnight Trading: Thursday–Friday 126
Expiration Friday 131
Appendix 1: Excel VBA Program for Counting Strike Price Crosses 143
“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.” – Jared Paioff
“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.)”- Pierre
About the author
Jeff Angen, currently a private investor and writer, has spent over a decade building a unique intellectu-al property portfolio of databases, algorithms, and associated software for technical analysis of derivatives prices. His work, which includes more than a milhon lines of computer code, IS particularly focused on the identification of subtle anomalies and price distortions.
Augen has a 2S-year history In information technology. As a cofounding executive of IBM’s Life Sciences Computing business, he defined a growth strategy that resulted in 51.2 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 TradeÜs 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.