Customer Reviews

Day Trading Options: Profiting from Price Distortions in Very Brief Time Frames

5 star:		(7)
4 star:		(4)
3 star:		(2)
2 star:		(0)
1 star:		(2)

 

 

Undeniably, this is the most densest book in a series of books by Augen that includes Trading Options at Expiration: Strategies and Models for Winning the Endgameand The Volatility Edge in Options Trading: New Technical Strategies for Investing in Unstable Markets and a workbook. This book is also perhaps the most targeted one and is unlikely to appeal to a broader audience.

The book in itself is fairly short (written with the gravity similar to academic journals) and has five chapters. The first chapter, though called "basic concepts" really sets the tone for the book and makes it evident that the intended audience is experienced day traders (true to the book title's implication). The chapter provides a very informed analysis of how options market (pricing) has changed in the recent crises, with specific focus on implied volatility swings and volatility skews across strike prices. The second chapter discusses automated trading and emerging trends in that field. Unless the reader uses sophisticated trading systems and is very familiar with programmed trading, the chapter is not likely to sustain significant interest, but the reader is well-advised to force yourself through the chapter. Using various detailed examples, Augen demonstrates the role of statistical analyses in trend exploitation, issues of "over fitting" indicators and volatility distortions. The third chapter (forming bulk of the book) deals with volatility distortions and how to trade them. The discussion is however based on 3-dimensional maps (implied volatility, calendar information and price) and is not really clear how accessible such tools are. Using various examples, Augen demonstrates approaches involving selling time decay and backspreads. The fourth chapter introduces a new charting tool with the premise that the principal goal of an option trader is to "arbitrage differences between implied and fair volatilities". Accessibility of the tools required and even suitability of these methods for the most aggressive casual trader (once whose primary job is not trading) is not clear here either. In the last chapter (perhaps, a neat set up for the next book?) Augen discusses special events focusing on only two - long weekends and associated price distortions and events surrounding markets "digesting" large amounts of news.

Overall, the book does absolute justice to its title - it is indeed targeting distortions for "very brief" (read minutes, mostly) and is fairly dense even for the experienced option trader. After having read all the books from the author in this field, the book on trading options near expiration was a far useful one for a broader audience in at least highlighting significant mechanics associated with expiration pricing dynamics and potential trade constructs. This book, Augen's dedicated focus on day trading, doesn't even pretend to be suitable for anyone but a niche audience. Augen does provide some interesting insights that will benefit any serious options trader, but this time, the book is perhaps a little too far out except for the very experienced and fanatic fans of Augen.

I just finished reading Augen's latest book on options trading, and I would say it is worth a read. I can't give it 5 stars because it really doesn't give that much direction on entry and exit requirements. This is slightly disappointing. An unnecessary amount of pages are devoted to showing that the market is random, so you can't predict it. This book does detail how to use volatility to possibly spot changes trading patterns. It also details how to find possible volatility distortions. It is up to the reader to implement these methods with his/her own programming and back testing. Back testing will be crucial to implementing the strategies outlined in this book because there really isn't that much guidance on when to enter and exit trades trying to capture volatility distortions. You will have to build your own rules after back testing.

Overall, this book isn't overpriced for what you get, so I'd recommend it to anyone who has a good grasp with programming.

I manage a hedge fund that trades equity and index options. Augen's books are required reading for all our traders. The current book is by far the best. The most important sections for us have been the discussion about calculating volatility in different time frames and the detailed trend analysis using minute-by-minute price changes expressed in standard deviations.

Following the approach outlined in this book, we now calculate a stock's overnight, intraday, and close-to-close volatility. Comparing these values allows us to identify stocks that have large overnight risk or stocks whose options are underpriced during the trading session. We use this information exactly the way the book describes along with our own knowledge to structure trades that are statistically advantaged.

The trend analysis using minute-by-minute price spikes calculated in standard deviations is equally valuable. This approach has dramatically improved our day trading capability. We've been building on the idea using other indicators and time frames longer than 1 minute.

The book is a fine piece of academic quality work. It's far superior to the more common "get rich quick" style investment books that have little value for serious investors. But it's not for beginners. Like the other books in the series, it was written for serious option traders.

This book does not contain as much math and theory as I expected, so I could understand its contents well. However, it is very short, and really only discusses in detail his method using standard deviations, which is not bad.

Unfortunately, this book lacks more explanation on how to implement the method described(downloadable .xls ?). For the price it is worth it, but keep in mind that it has a limited amount of information that may be helpful.

Users of Optionvue should take note of this book. Although Optionvue is limited modeling the most important concept in this book --graphing stock movement as standard deviations, users can nonetheless grasp concepts about trading implied volatility that are beyond the scope of the remainder any of the books on Volatility and Optionvue's own basic tutorials.
What distinguishes this book from all the rest is an explanation of situations where volatility trades can be profitable, techniques that are useful and the entry and exit points. Careful reading also makes condors and butterflies less attractive when the number of average volatility spikes for stocks greater than 2 and 3 standard deviations does not vary much between low and high volatility stocks in the same time frame. The information also hightlights
Optionvue's inability to visualize important information about volatility. Chapter 4: Working with Intraday Price Charts is totally beyond the capability of Optionvue modeling. This chapter introduces a new charting tool which models price change in the context of volatility. FASTMONEY commentators often state that a stock's option has a $5.00 move priced in. This book explains the concept of graphing stock price change over any period of time as a standard deviation, not as price change or percentage. Chapter 5 discusses special events that can be traded and the usefulness of graphing stock price as a standard deviation.
In summary, to the informed this small book is a great tutorial by a great teacher. The concepts are both original and based on years of experience as a trader. It makes the case for short term trading, but more importantly explains the best way to profit from volatility. This book is 168 pages. Good things, when short, are twice as good.

Each chapter in this book really could be a book in itself. The first chapter on technical analysis actually made me laugh out loud. Mr. Augen applies popular indicators to randomly generated graphs to illustrate a point that he makes statistically, namely, stock prices do not contain information about what will happen next. Coming to terms with this reality should save investors a fortune. In the next chapter he then proposes a statistically based indicator rather than one based on moving averages. I've found it to be very predictive because it is based on the reversion to the mean concept. The third chapter is really fabulous for hard core options traders. Taking advantage of the differences between the intraday and interday volatility to create a day trading strategy is an opportunity not to be missed. I love these books that are intelligently written, not get rich quick, and very real world practical.

Volatility trading is an elusive subject with few practical texts. Retired floor trader techniques usually don't work well for retail traders and the available books on volatility are theoretical lacking practicality. Augen's book should really be considered a textbook written from the perspective of an active retail trader who thoroughly understands volatility and trades volatility both long and short. This book argues subtly but powerfully against time decay strategies such as condors and butterflies. Too often volatility spoils these trades. Augen's book presents concrete examples of price anomalies and market distortions where volatility yields profitable trades in short periods of time. The book describes real trades and discusses the theoretical underpinnings. The information is put into perspective with discussion of volatility with nuance and texture absent in other books. To capitalize on this short book requires copious note taking, case based reasoning and modeling software to visualize both the many concepts and the risks associated with placing and maintaining the positions. This book is not intended for a passive reader. It is most rewarding to those who are knowledgeable about option theory, and option trading experience. The option strategies that are described in detail in this book are rarely or only briefly mentioned in passing elsewhere, and include ratio backspreads among others. One of the most compelling concepts is modeling price movement in terms of volatility, i.e. as standard deviations. . This book affirms Augen as the ultimate preceptor in Option Volatility.

Options are not easy at all. Wisely the author does not make it easy either, and the book gives some hard time to a reader. Instead of simple strategies and directional guesswork in turbulent markets the author proposes serious work based on mathematics and deep understanding the subject. The book argues for solid systemic risk/reward calculations, experimentation, model fine tuning and your own efforts. The book also gives crucial background information on price dynamics in current markets and warns about numerous pitfalls and common oversimplifications.

Using some mathematics and spreadsheet programming you can get test models and simulations working to begin with. The book leaves the final work to the readers because in the market the investor and trader oneself must be responsible. It does not make it easy for novices but author's earlier books follow the same pattern of thinking and they are of great help on the way. Especially clearly we can learn how to approach the central and difficult factor of implied volatility. You have to invest your time to get into this multidimensional problematic. The book is about very brief time frames which may cut down the interested audience but the same models work in any time frame. The book is an important contribution to investor community and it is a must reading for anybody serious about stocks or options.

For those who understand math this is a good book. For the rest of us, there are a few helpful pieces of information but it's a hard read unless you REALLY enjoy math and want to understand your edge with options by doing the math.

One more great book by Jeff Augen. They are worth the time to read over and over until you completely understand what he is saying.