It is easy to automate the closing order by doing simple programming on your own. Below are some of the scenario to close option orders.
Closing a Bull Put spread (bups) order
- Take profit when premium drop to below certain price and close out the bups option trade
- If market price reach the sell leg price, can close out the bups order with limit the loss to a certain amount
- Beware of this as sometime the market does not give you this limit premium that you requested especially when volatility exploded and the premium may not be filled even when it is triggered.
- Can change to market premium to ensure closed out
- If price drop to or close to the sell leg price, trigger rollover with some a limit premium (also depend on market conditions when it is triggered)
In fact, it is so flexible and I can program the above three scenario or more (include adjustment) into a single closing order so that I don’t need to stay awake to monitor the US market when the timezone is not the same.
I shared an option strategy that I had backtested and also forward-tested for few months with reasonable return. When I shared this strategy with friends, the feedback is that it is not workable and vulnerable to volatile market forces etc.
However, one friend decide to test out this strategy with his live account and so far all are winners. Now, he is excited and wanted to do more and explore other instruments with this strategy.
I predicted sometime in the future, my friend will abandon this strategy when market condition changed or when he hit a few losses.
A perfectionist seek to look for a perfect strategy that win all the times, and an average Joe is happy with high winrate and average return. I am the average Joe.
When I looked at my trades, realized that almost 90% of them are on weekly options.
Weeklies advantages are :
- Theta decay is most fierce in the last week of expiration
- Plenty opportunities to do Earning play
- Technical Signals setup; Hammers, Shooting stars and crossover .etc
- Ride on Macro news like FOMC, Oil inventories or any major news
- Counter like SPX have three expiry dates within a week
- Big counters with weeklies are gaining more liquidity and thus easy to close or exit
There are a few downsides of the weeklies :-
- Gamma risk (positions get tested often)
- Adjustment is almost impossible
- Commission cost
Of late, I have been trading on a new broker platform and that save me a huge commission cost with $1 per contract and no closing cost.
Do open an account with tastyworks.com if you trades weeklies.
Recently, at local option gathering group, we were discussing using TDA scan to identify stocks to play options. A friend ask for me for any good watchlist. I recommended them to use penny increment options from TDA platform that provide optimal price and liquidity for option.
Beside low commission of $1 and no closing fee, they also provide free trade on 23 Aug 2017.
Can signup an new account here tastyworks.com
Oversea or non-resident of US, when opening an account chose Margin and non-residential. The paperworks is quite straight, transfer of fund instruction is clear within 5 days the fund will be deposited and the help desk people are really helpful and most willing to answer any questions.
Do note that Tastyworks is an oversea broker and not regulated by MAS.
The author study Tastytrade style of option and some of the chapters seem interesting like Chapter 10 on Evaluate Candidate Strategies.
Beside POP, BE, ROC etc which is quite common, the author introduce Theta Efficiency which I have not considered previously in all my option trades. I decide to buy the ebook online at USD$3.99 and it come with an free excel software which calculate all these ratio automatically. However, the excel is so rich that I am still trying to figure how to use it effectively.
A good friend wanted to know what I do before market open. I told him that I usually plan my trades before market open. He asked how do I plan and can give him some specific example.
Example : This period is earning season and I will plan for earning play. I would list down all the after-market and before-market earning and list down all the counters. I prefer to do post-earning trades or when the earning result is announced. The stock will have a general direction where it is heading, I would put in my option trades and within 5 days I will be out of the trades.
- List down those stocks earning After Market closing and Before Market opening result
- Observe the earning result to get a sense of general direction
- When market open, note the price direction (spot trend or candle signals)
- Enter when there is confirmation
- Chose weekly option or DTE within a week (at most two weeks)
- Probability of win is high (follow trend strategy)
- Premium may be low but time decay is fast
- Effective use of margin as every week the margin is replenish
I caution my friend that following other people option method may or may not suit his character or nature. The best is that one should develop his own and practice it into perfect with fullness of time in the market.
Three professional option traders; Tom Sosnoff, Tony Battista and Tony Rihan.
They offer free subscription to Bob the traders signals (Tom and TonyB).
I open an account with www.tastyworks.com and link Bob the trader to my account so that I can get Tom and Tony’s option trades free for two years.
Below are some of their option trades in real time.