Screen Shot 2017-03-03 at 2.37.07 PM

Understanding the Strategy Block


The Strategy Block is used to define the stock and option strategies to trade.  Using the Strategy Block, you can trade a variety of supported  stock and option strategies, including but not limited to:

  • Long / Short stock
  • Covered Call
  • Married Put
  • Call / Puts
  • Put / Call Vertical
  • Put / Call Butterfly
  • Put / Call Condor
  • Put / Call Calendar
  • Put / Call Ratio
  • Put / Call Diagonals
  • Put / Call Unbalanced Butterflies
  • Straddle / Strangles

Strategy Block


The Strategy Block contains various features that will allow you to customize your trades to your specific requirements.

Strategy: Define whether to buy / sell different strategies, such as covered calls, butterflies, etc…

Size By:  Define how to size your order at trade entry.    You can use different metrics to size your trade, including:

  • cost – size by the cost of the position
  • debit – size by the amount of debit.   Used for strategies that results in a debit (buy put, buy stock, etc)
  • credit – size by the amount of credit.  Used for strategies that result in a credit (selling put, short stock, etc)
  • margin – size by the amount of margin for the trade.
  • quantity – size by the number of contracts
  • risk – size by the max risk of the position

Max Open: Define how many concurrent open positions to trade at any given point in time.  For example, if Max Open is 1, only one position will be traded at a time.  Before a new position is opened, the old position will have to be closed / expired first.

Filter By: Define the specific requirements of the position, such as days to expiration, target delta, etc.  The requirements can apply to the entire position as a whole, or can apply to a specific leg in the position. (More details below)

Comments: Add your custom comments to the position.  Comments are useful when analyzing your backtest results, allowing you to trace which transactions were executed by which Strategy block.

Risk-Reward / Cost Basis:  In the instance that multiple positions satisfy your requirements, you can define which position to select based on metrics such as risk-reward / cost-basis.

  • For instance, if you are buying a call option, you can define min cost-basis to select the cheapest call option that satisfies your requirements.
  • Or if you are selling an iron condor, you can define max risk-reward to select the iron condor with the highest risk-reward ratio.
Placeholder

Filter By


The Filter By section of the Strategy Block allows you to define the exact requirements of your trade.  You can define filters that apply to the entire position as a whole (such as net delta of the overall position), or define filters that only apply to a certain leg of the position (such as delta of the short strike)

By default, the filters apply to the entire order.  But you can apply the filters to a specific leg of the order by enabling the “Leg” option under the “Gear” icon of the filter blocks.  For example, the Strategy block below will define an Iron Condor where the short strikes are 10 – 12 delta, but the overall net delta of the iron condor should be between -20 / +20 delta.

Preview Trade


Once you’ve defined your requirements, you can click on the “Magnifying Icon” to preview the trade.

If there are positions that satisfy your requirements, the matching positions will be displayed for your review.  However, if no positions satisfy your requirements, you may want to adjust your Filter By criteria to be more inclusive and / or  change the date of evaluation.

Advanced Options


The Strategy Block contains Advanced Options that can be enabled by clicking on the “Gear” icon.

At Expiration: Define expiration behavior.  You can close the position at expiration, or allow the position to be exercised / assigned at expiration.  If exercised / assigned is selected, long in-the-money options will be automatically exercised and short in-the-money options will be automatically assigned.

Instrument: specify a different instrument to trade, compared with the main instrument defined.  In fact, you can trade multiple instruments by defining a different instrument per Strategy block.

  •  For instance, in the example below, the main instrument is SPX, but a naked put will be sold on the SPY, and a call option will be bought on the VIX.  The short SPY put will be exercised / assigned at expiration, while the VIX call option will be closed at expiration.

Comments

  1. Jeff

    For the back test, is there a way to put on a stop loss? say if the loss is 50% or 100% of the sold premium, the position is closed at a loss.

    1. Author
      Option Stack

      Yes, you can add stop losses based on the amount of credit received. In fact, you can define adjustments / exits based on hundreds of different studies, such as profit targets, loss targets, option greeks, breakeven points, technical indicators, etc..

Leave a Comment