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Delphian Blog

Options Trading Strategies

Posted by Michael McNelis on Oct 10, 2016 3:06:51 PM

Options Strategy - Key2Options Platform

Options gives you options. In traditional stock buying, most people buy and hold stocks. Some call it buy and hope. The expectation is that the market at some point will go higher and your stock price will go up. Does the market always go up? Of course not. The market can trend up, down or sideways for periods of time. Why not capitalize on major moves using options? We can use option trading for hedging positions, for capital appreciation as well as generating income.

What is an option?

An option is a derivative financial instrument that specifies a contract between two parties for a future transaction on an asset a reference price. The buyer of the obligation gains the right, but not the obligation, to engage in that transaction, while the seller incurs the corresponding obligation to fulfill the transaction.

There are two types of options, calls and puts:

  • Call Option: an option which gives a right to buy the underlying asset at a strike price.
  • Put Option: an option which gives a right to sell the underlying asset a strike price.

The trader makes a determination on the direction of the stock/Index (known as underlying). From there, the trader can decide on a strategy. Let’s assume a trader thinks a stock will make a move to the upside (bullish). A trader can choose a strategy like: Long Call, Bull Call Spread, Bull Put Spread, or Naked Put just to name a few.

How is a trader to determine whether to choose long call or bull call spread? As a member of Key2Options, traders can build a quantitative model, then backtest their hypothesis to determine which strategy would work the best for a particular underlying.

Step 1

Have a hypothesis to build a quantitative model. Example: Buy Apple on Monday, sell on Friday.

Step 2

Build and back test you model using a long call strategy, use inputs for money management as well as expiration dates and choice of in the money, at the money or out of the money options.

Step 3

Run a backtest to see how your model performed.

Step 4

Refine your model by changing inputs to find optimal trading

Step 5

Trade your model commission free directly from the Key2Options platform using Tradier Brokerage Inc.

Once you have tested your model, you can trade it or try another option strategy. Long Call is just one bullish option strategy. Complete the same process using a Bull Call Spread to see which bullish options strategy performed the best. Perhaps naked puts returns better than long calls!

With Key2Options, we give traders the ability to analyze data without the need to have any computer programming. We supply the data and the platform, you input your strategy.

By going through this process, you can determine the best options trading strategy. At Key2Options, we help traders make rational trades, not emotional ones.

 

 

 

 

 

Topics: Daily Market Summary

From creating a personalized quantitative model for advanced traders to providing “built-in” strategies for beginners and intermediates, Delphian proves to be beneficial for everyone.  Using dashboards and wizards, Delphian provides traders unbiased assessments during highs or lows, giving investment advice based on facts rather than emotions. The program can be used to increase alpha by utilizing buy & sell signals (generated by using predictive analysis), with prices and time targets identified at the trade entry point. Price targets reflect volatility in the market and use self-learning machine learning models. Currently, coverage includes stocks and options in US markets beginning from Jan 2007.

 Significant benefits include:

  • ENHANCED COLLABORATION - By sharing quantitative and qualitative analysis between parties, Delphian forms a structured and disciplined approach towards research models.
  • REDUCE LABOR COSTS & EFFICIENCY RATIO - Delphian enables faster analysis and helps to vet ideas with low cost. Delphian helps reduce the learning curve for newer analysts, resulting in higher productivity.
  • CONNECT QUANT MODEL TO OPTIONS TRADING - When working quant models for equities connected to Delphian, the program helps leverage option strategies for the same position.
  • IMPROVE TRADING STRATEGY DESIGN EFFICIENCY & INCREASE/ IMPROVE ALPHA - Delphian helps induce efficient options strategies to funds and improves the alpha due to leverage.
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