About this template
Hi All,
I am extremely glad to share my first bot to the Option Alpha community.
The bot is actually very simple to understand, to modify and to test as well.
- No position monitor automation is added (at the moment).
- No continuous scanner automation is added.
- Only two events are run – first: at the market open (9:40 am EST) and another one: at 10 am EST.
- The bot opens two positions of 0DTE at-the-money (ATM) Iron Butterfly (IB) at the above-mentioned timings.
- Both the events run the same automation viz. Open ATM IB – Use ATR
- This being a 0 DTE strategy implementation bot, my thanks go to the following notable inputs (and many such) –
0DTE Options Strategies: Insights from 25k Trades (an amazing blog!)
Study Targeted 0-1 DTE Iron Butterfly
Forward Backtesting (many thanks Charles for the above two!)
Best 0 DTE Backtesting Software: Option Omega Backtesting Interview with Troy McNeil (Option Omega 0DTE Back-testing)
What's Behind The Explosion In 0DTE Option Trading
- My strategy makes use of the Average True Range (ATR) indicator value.
- As you know, currently even though ATR is available as an indicator in OA automation, I am unable to take the value to calculate IB wing length (using a formula). Hence, I have created a bot level input to key in the ATR. I populate this value every week-end (I take max of ATR 14 & ATR 5 values).
- Why ATR as a wing length?
Here is the graph of the ATR (14) and ATR(5) for SPY over 2021 & 2022.
After the market opening, the SPY price could go up or down by the ATR value from the opening price.
I believe that opening an at-the-money (ATM) Iron Butterfly with buying out-of-the-money option wings at the length of ATR provides necessary safety needed for the position management.
- What is layered here?
As the price of the underlying moves from market opening (9:40 am EST) till say 10:15 am EST, I decided to have two ATM IBs so that an Iron Condor effect could come into play (i.e. layering of 2 IBs on the top of each other). Probability of success could increase with this.
- Profit Taking & Stop Loss –
I have utilised the wonderful feature of the ‘Exit Options’. As you know, it runs every minute to monitor a position (special thanks to the OA team for this feature!!).
Taking profit at 12.5% of the credit received is the optimum number I am using. I could use 15% as well but being bit conservative to start with.
..again why these numbers? See below –
Expanded ‘Exit Options’ and 0 DTE
(Thanks to Bill for providing the insights of the study conducted!)
12.5% - 15% of CR seems to be an optimum range for PT.
- Paper trading results
Maybe I am in a hurry to share this bot or maybe I am too excited 😊.
However here are the results of my 1 week’s paper trading with SPY.
I am testing the bot with QQQ as well in my paper trading account.
- Taking into the live trading
Not only due to the results of my paper trading but also after studying others’ results, I am convinced to use this bot in my live trading account starting tomorrow with minimal capital allocation. Shall share you the results.
Comments, suggestions, feedback are welcome. Many thanks in advance.
