Options trading. Efficiency of trading signals by OptionClue option screener

Торговля опционами. Статистика доходности торговых сигналов опционного скринера OptionClue

Contents

How to choose stocks for options trading

In this article we’ll analyze the statistics on the return of trading signals that were generated by OptionClue option screener according to the option’s attractiveness general index Alpha.

Alpha index takes into account conditional «high cost» or «cheapness» of options, as well as the market condition and the movement potential (flats, triangles and strong trends).

We will focus on the minimum index values, which are presented in the straddle and strangle options screener table. Alpha index values of 0.75 and lower indicate the attractiveness of purchases, and you can find very interesting opportunities to enter the market among them. As a rule, stocks with minimal index values are in the top of the option screener table.

To start trading options, you should complete 3 simple steps:

  • on the site optionclue.com go to the section «About screener TOP 10»
  • open Alpha index and analyze the table «TOP 10 assets to buy options» and select stocks with minimum Alpha values, especially with Alpha of 0.75 and lower

How to choose stocks for options trading by screener

  • in the trading platform (for example thinkorswim trading platform), we find 3-month options with strike prices closest to the current stock price and buy underlying straddles or strangles taken from the screener

 

Building an option portfolio based on the OptionClue screener

Straddles and strangles option screener for searching promising assets was created in early October. The first set of trading signals of the screen is presented below. On 11.10.2017, the option screener identified 6 stocks with the Alpha index under 0.75. The expiration date of 3-month underlying options is January 19, 2018.

Below are stocks for building a profitable option portfolio (purchase of straddles):

  • RH (Alpha 0.51, strike 75)
  • FL (Alpha 0.6, strike 34)
  • CMCSA (Alpha 0.66, strike 37.5)
  • HAL (Alpha 0.71, strike 45)
  • GIII (Alpha 0.73, strike 30)
  • PAY (Alpha 0.74, strike 21)
RH. Alpha index was 0.51 (ranked 1st in the TOP 10 assets to buy options). FL. Alpha index was 0.6 (ranked 2nd in the TOP 10 assets to buy options). CMCSA. Alpha index was 0.66 (ranked 3d in the TOP 10 assets to buy options). AL. Alpha index was 0.71 (ranked 4th in the TOP 10 assets to buy options). GIII. Alpha index was 0.73 (ranked 5th in the TOP 10 assets to buy options). PAY. Alpha index was 0.74 (ranked 6th in the TOP 10 assets to buy options).

As we can see from the stock price charts, most of the shares at the time of option positions opening are in the flat. This is due to the fact that Alpha index is also based on Sigma index (identifies assets with low and high volatility) which is included in the full version of the OptionClue option screener.

So, we buy options with these parameters and in the future we will monitor the change in the straddles prices with an interval of 1 or 2 weeks.

Changes in yields of options by the example of 3-month straddles

Straddle prices at the time of buying options were:

  • RH straddle price – $19.29
  • FL straddle price – $5.65
  • CMCSA straddle price – $3.21
  • HAL straddle price – $4.54
  • GIII straddle price – $5.67
  • PAY straddle price – $2.69

To make profit in the options market, the straddles prices when buying options need to increase with time. And since the straddle price depends on volatility and the stock price, as well as on the time to expiration, I recommend that you see the price changes with time:

Changes in straddle options prices from October 11, 2017 to January 2, 2018. Data from thinkorswim trading platform.

Changes in straddle options prices from October 11, 2017 to January 2, 2018. Data from thinkorswim trading platform.

For illustrative purposes, let’s look at the change in straddles prices in percentage terms (Fig. 8). Data for October 11 are taken as a starting point and all further calculations are made regarding this date. We analyze the change in yield as for a single option combination, and for the portfolio as a whole («Overall return» column):

Changes in the yield of straddles and portfolio in percentage terms from October 11 to January 2.

Changes in the yield of straddles and portfolio in percentage terms from October 11 to January 2.

As we can see, during the first week prices hardly changed, and the aggressive yield growth started about a month after the purchase of straddles, reaching a value of 111% in 5 weeks (November 17, 2017).

The yield of portfolio peaked the rate of 280% since buying options on December 21 (9 weeks later) that was 1460% per annum!

It should be noted that on December 28, 2017 the portfolio yield decreased to 171% (for 10 weeks) primarily due to changes in the stock market in the run-up to the Christmas holidays, and by January 2, 2018 the overall return of portfolio began to increase again and was 223% for the reporting period (slightly less than 3 months).

Five of the six stocks included in portfolio have a positive return and only RH is negative on January 2, 2018, although this share yielded about 50% earlier.

Conclusions on the yields of screener trading signals

The diagram below shows the change in the yield of individual option positions and the portfolio as a whole from October 11, 2017 to January 2, 2018.

Diagram of changes in the yield of straddles and portfolio from October 11, 2017 to Janury 2, 2018.

Diagram of changes in the yield of straddles and portfolio from October 11, 2017 to Janury 2, 2018.

In options trading when using all screener alerts based on Alpha index simultaneously, we get the steadier and smoother yield curve (black line).

As we can see from the diagram, the portfolio yielded 100% in about a month, and in a little more than 2 months, the yield was 280%.

This means that you can take profit or start hedging options positions (when important support and resistance levels are reached, and if a trend reverses) long before the 3-month options expiration date, and also use next screener trading signals when building a new investment portfolio.

The best way for maximizing profits when trading in the options market is to use the OptionClue option screener, which saves a lot of time and generates relevant alerts to trade straddles and strangles every day.

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