Any opinions/experiences with OptionScholar, buying Iron Butterflies on expiration?

A

aibanez

This guys (OptionScholar . c o m) claim that with the strategy of buying iron butterflies on expiration and due to volatility you can make a lot of money!
Visit the website and check the video on the bottom of the main page.
I'm really skeptikal of their claim, what about you?
Comments are welcome!
 
We are at the lowest volatility in HISTORY. There is no way that strategy could work in this environment.
In a high vol environment, of course it has merit.
 
aibanez said:
This guys (OptionScholar . c o m) claim that with the strategy of buying iron butterflies on expiration and due to volatility you can make a lot of money!
Visit the website and check the video on the bottom of the main page.
I'm really skeptikal of their claim, what about you?
Comments are welcome!
More...

Looking at their website they seem to be doing something very similar to Jeff Augen's work. Selling flys in the weekly option series assuming that price will move away (people word it in different ways but I am referring to being long the body of the fly). I think it has some merit, I ran a similar strategy on AAPL that was overall successful. The returns are based on what you invest and since you have the chance of losing more than you can make I doubt you are going to put more than risk capital to work. So 1600% return sounds good until you realize it will be on only a small portion of your capital. The price seems steep, I would look at Augen's book first I believe he has some videos out there talking about stocks decoupling from strikes and how to profit. The drawbacks of this strategy are the bid ask spread (remember you are trading multi legs on weekly options) and once you get in it can sometimes get tricky to get out. The other drawback is that you are burning through theta (essentially you are buying a straddle and financing some of it by selling the wings) so if the stock sits you will lose.
 
Dolemite said:
Looking at their website they seem to be doing something very similar to Jeff Augen's work. Selling flys in the weekly option series assuming that price will move away (people word it in different ways but I am referring to being long the body of the fly). I think it has some merit, I ran a similar strategy on AAPL that was overall successful. The returns are based on what you invest and since you have the chance of losing more than you can make I doubt you are going to put more than risk capital to work. So 1600% return sounds good until you realize it will be on only a small portion of your capital. The price seems steep, I would look at Augen's book first I believe he has some videos out there talking about stocks decoupling from strikes and how to profit. The drawbacks of this strategy are the bid ask spread (remember you are trading multi legs on weekly options) and once you get in it can sometimes get tricky to get out. The other drawback is that you are burning through theta (essentially you are buying a straddle and financing some of it by selling the wings) so if the stock sits you will lose.
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You are absolute right, thank you! I will check Augen's book!
 
syswizard said:
We are at the lowest volatility in HISTORY. There is no way that strategy could work in this environment.
In a high vol environment, of course it has merit.
More...

I don't believe this is true. The current vol by itself has no bearing on whether this strategy makes money. It all depends on the PRICE you are paying for the spread, relative to the vol. For example if you bought a $5 iron condor for 4.90 in a high vol environment, would you be better off than if you bought the same condor for .20 in a very low vol environment? Extreme examples yes, but the key is to look at the relative price of the condor.
 
FSU said:
I don't believe this is true. The current vol by itself has no bearing on whether this strategy makes money. It all depends on the PRICE you are paying for the spread, relative to the vol. For example if you bought a $5 iron condor for 4.90 in a high vol environment, would you be better off than if you bought the same condor for .20 in a very low vol environment? Extreme examples yes, but the key is to look at the relative price of the condor.
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You're absolute right the guy from the site syas that the success or failure of each trade is based on the price at which you can get open and close the transaction, ie, get a good price between the wide bid and ask (discount price) and then sell back to the market at a "fair" price.
 
aibanez said:
You're absolute right the guy from the site syas that the success or failure of each trade is based on the price at which you can get open and close the transaction, ie, get a good price between the wide bid and ask (discount price) and then sell back to the market at a "fair" price.
More...

The problem here is obtaining the spread at "good" price. You will generally have to give up edge to put the spread on and to take it off. Add to that the commissions on 4 legs, both on and off, makes it extremely difficult to make money over time.
 
FSU said:
The problem here is obtaining the spread at "good" price. You will generally have to give up edge to put the spread on and to take it off. Add to that the commissions on 4 legs, both on and off, makes it extremely difficult to make money over time.
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This is the problem I always had with the trade. Getting on isn't the problem, you either get your price or you don't do the trade. However, trying to get out is the tricky part especially when you have a profit and you want out. I ended up getting rid of the legs and just trading the straddle of the fly. I think there is some merit to this strategy by the way. You just have to spend some time studying the fluctuation of the stock (again Augen goes in to some detail in his book) and modeling the price of the fly/straddle to know what a good price is. There is no reason that it can't be part of an overall portfolio.
 
FSU said:
Add to that the commissions on 4 legs, both on and off, makes it extremely difficult to make money over time.
More...
EXACTLY. This is a strategy/position that must be held thru expiration.
Trading it makes no sense.
 
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