Yeah, what you are thinking is absolutely right. We have automated the Options and Cash market. Please find the below approach we took for automating the Options market and let me know your thoughts :
- Generate the signals using Technical Indicators, Fundamental Study or Machine Learning algorithms. We use the Price Action strategy to generate the Buy/Sell signals on the Nifty and BankNifty Indices. Our Robot will scan the markets continuously and generate the signals on a 5 mins time frame.
- We will pick the right Strike price and the Expiry from the generated signal value. Let’s say we got a Buy signal in Nifty at 16535. The strike price at which the Buyer or Seller can exercise is 16550 (ATM), 16500 & 16450 (ITM) and 16600 & 16650 (OTM). Generally, we choose In The Money(ITM) and the next expiry date to avoid slippage.
- If the bot strategy suggests a Buy signal, we buy the Call Option and in the case of the Sell signal, we buy the Put Option. Note: Currently we now have the right to buy a security at the predetermined price until the expiry date.
- Having decided which option to buy we fetch the Last traded price. Based on the LTP the bot will calculate the Optimal Lot size, Target and Stop loss. The orders will be placed instantly.
Order Management :
The important thing when you are trying to automate the options is having robust order management skills. We have optimised our codes so efficiently that the system places the limit order first and checks if it is executed within a certain range of time. For a successful Options position, we immediately place the Target order if the movement is positive and the stop-loss order when the position turns negative. In the cash market case, we place the Robo Orders i.e., One Cancel Other to manage the Target and Stoploss orders.
- We will be far away from emotions, fear, stress, tensions etc
- Able to capture the movements quickly and never miss the opportunities
- Allows to backtest the strategy and maintain a dynamic risk-reward ratio
- Need proper monitoring and any mechanical failures would lead to huge losses
Hope this has helped you. Please feel free to connect with me for any queries or suggestions