Safeguards

The Option Alpha autotrading platform has been designed with multiple safeguards and limits to protect traders. Bots necessitate you to think through the entire trading process from entry to exit. This is for your safety.

Bot safeguards are designed to help traders think about their automations critically. Bots require that you define what to do, when to do it, and with how much capital to allocate. Automations only run when they are turned on. Position and allocation limits help manage overall portfolio exposure, and automations automatically turn off if a limit triggers. The bot will alert you if an automation is missing an input so that you do not create an automation without clearly defining the actions the bot should perform.

You can always paper trade with any bot and test automations in live market conditions.

Bot safeguards

Bot safeguards are in the bot's Settings. Safeguards define the bot's allocation and position limits. You can edit the safeguards at any time.

Allocation safeguards

When you create a new bot, you must manually input an allocation limit.

Allocation is the total capital from your trading account that is available for a bot to open positions. Bot allocation limits are calculated at position entry.

The bot will not open a new position once the allocation limit is reached. If the allocation limit is reached, a new position will only open once another position has been closed and additional capital becomes available, or you change the bot's settings.

Market conditions at position closing may cause increased capital allocations beyond the calculated maximum risk at position entry. If the market is illiquid or bid-ask spreads are wide, bots have the potential to risk more capital when the position is closed than was allocated at entry.

For example, if there is a wide bid-ask spread for a credit spread position, the ask price to close the spread may exceed the spread’s width. As always, you have the ability to manually override positions, SmartPricing settings, exit criteria, and orders at any time.

If you manually override a position, the Option Alpha platform no longer communicates with the position, and the position will not count against position limits or capital allocation limits. You will need to manage the position manually. You may also need to re-consider your bot’s capital allocation limit if you manually override positions.

Position safeguards

You can manually select and modify daily and total position in the bot's safeguards. Bots allow for ten daily positions and ten total open positions.

'Daily positions limits' is the maximum number of positions a bot can open in one trading day.

'Position limits' is the maximum number of positions that can be open in a bot at any time.

Position limits are for opening positions only; there is no limit on the amount of closing positions, and closed positions do not impact the safeguard position limits.

Supercharge to increase the bot's position limit to 25.

Scanners are automatically turned off if a bot reaches either limit. If a bot has reached an allocation or position limit, the scanner turns off and a warning is displayed in the Position statement and Bot Log stating that a position limit has been reached.

Trade safeguards

Trade safeguards require you to manually input certain values, such as the ticker symbol, expiration date, strike price, and more. You must also quantify maximum risk, contract amount, or a percentage of the bot's allocation.

These protections are in place because you are responsible for telling the bot exactly what to do.

Other safeguards

Bots may open risk-defined options positions. This feature is in place to protect traders from undefined risk and to control margin requirements.

Synthetic naked positions can be replicated by purchasing far out-of-the-money long options to create a wide credit spread.