This sample bot template introduces an opportunistic bot strategy that scans for overbought technical signals across three popular indicators (RSI, CCI, and Stochastic) for “Cherry Picking” bearish trades. The goal of this template is to constantly scan for short-term market tops where all of the technicals are showing overbought signals (call it “signal alignment”) and then sell an OTM, high probability short call spread.
It’s a powerful bot template so let’s dig into some of the highlights…
The template only requires one scanner automation. This scanner quickly loops through your tickers and does a quick couple of checks to make sure that you don't have any existing positions in that symbol and that the bot has the ability to open a new position.
Next, we actually placed all of our opportunity filters higher up on the decision tree. Since this bot uses many different ‘Open Position’ actions later on, we’ll have the bot perform all of the opportunity filters early in the process BEFORE we even get to the technical signals to keep our automation clean and organized.
Now, the technical signals (this is the fun part!
When cloning this template, you’ll notice that you have full control, using switches, to turn OFF or ON any of the three technical indicators you want to use.
The indicators that are switched ON will be checked for overbought signals. Any and all technicals turned ON would need to be showing an overbought reading at the SAME TIME to trigger a cherry-picking trade.
For example, if you turn ON all three technical signals (RSI, CCI, STOCH) the bot will check to make sure all three of the indicators are currently overbought. If 1 of the 3 is NOT overbought, then the automation ends because there’s no trading opportunity.
Here’s a quick example showing the alignment of all 3 technicals for IWM that would have triggered some “cherry-picking” trades for your bot.
And another example using XLU. Remember, this bot is looking for alignment of all indicators so it's going to do a lot of scanning as it searches for the best opportunities.
Now, let’s say you turn ON just RSI and CCI while turning OFF the switch for STOCH. Well, in this case, the bot will intelligently check just RSI and CCI for overbought signals and ignore STOCH. Again, both indicators that are turned ON (in this example RSI and CCI) would need to be showing overbought levels to trigger a new trade.
So, feel free to turn ON/OFF any technical signals you want to use for cherry-picking!
New positions are set up to look for spreads of at least 45 DTE (only monthlys) with a short call strike near the .30 delta and the long call strike near $2 above the short call leg. This creates a high probability, risk-defined trade. Naturally, you can adjust and modify your short call spread setup when cloning the template to fit your trading style.
We've also used Position Tags to tag opened positions as ‘Overbought Cherry Pick’ and then ‘RSI’, ‘CCI’, and/or ‘Stochastic’ depending on the indicators you have switched ON which helps you organize your positions if you're trading spreads across other bots.
With tags, you can sort and filter positions by tag so you can see which positions were entered under what conditions.
For this particular bot sample, we are using one monitor automation since the strategy only sells call spreads. For this template, we decided to build a more traditional and classic monitor automation you might want to use inside other bots that enter short call spreads. Though the name suggests it’s simple, don’t underestimate the powerful decisions and logic that’s built inside this automation.
The monitor first checks for the specific position type to reach an ‘Absolute Profit Target’. This is the profit that, if reached, you would exit the position right away. Next, we are using our proprietary “SmartStops” decision only available here at Option Alpha. The SmartStop will check for the position to reach a target, then monitor the premium by the trailing amount for exiting.
Finally, we get into the logic as the position nears expiration (what we set up as within 10 market days from expiration). If the position expires in less than 10 days we first check for a ‘Near Expiration Profit Target’. This is likely a lower profit target than your ‘Absolute Profit Target’ but is a profit that you’d be comfortable accepting given that you are running out of time on the position. If this lower profit target is hit then the bot will try to exit the position. If it’s not even at that profit level then the bot checks to see if the position is inside 3 market days from expiration.
Inside 3 market days from expiration, the decisions are set up so the bot now checks to see if the short call strike’s intrinsic value is GREATER than the threshold we set. The default for the template is ‘1.0’ which would mean that the short call strike has intrinsic value of great than $1.00. Whenever the short call strike’s intrinsic value is above this threshold AND the option contracts expire in less than 3 market days, the bot will close the position.
Another way you could think of this is that it’s evaluating how deep ITM the short call strike is. The higher this value, the more you are willing to let the position get challenged as it nears expiration. It’s just another example of how you can use bots to logically monitor positions for you. Wicked powerful right!?
Note: Again we used Position tags inside our monitor automation to tag closed positions based on the conditions in which they were closed so you can see how/why the bot closed the position later on when reviewing your trades.
You’ll notice on this bot sample that we’ve added bot-level inputs for all parts of the strategy that are controllable. This works really well with this strategy because it gives you the power to control everything for the short call spread entry and exit in one place.
In particular, this strategy uses switches for each technical indicator, with corresponding settings for that indicator you can customize. And because the scanner uses numerous ‘Open Position’ actions down the different indicator paths, using custom inputs for the short call spread setup as bot-level inputs makes the bot easy to edit and adapt to different use cases.
These sample templates are just a starting point for bot building. Post your own modified/edited version(s) of this bot template in the comments below or publicly in the Community to help crowdsource new ideas for your fellow traders.