Trade Ideas

Trade Ideas helps us find trades with an edge based on expected value (EV) and probabilities. Trade Ideas displays opportunities in the options market in a convenient way to analyze the potential profitability of a position vs the potential risk associated with the position.

Trade Ideas ranks spreads for profitability from a subset of all optionable symbols available to trade at Option Alpha (see the full list of Trade Ideas symbols here). The symbols are selected each day based on ranking factors like liquidity, signal quality indicators like overall spread width, and outlier filtering.

How it works

The Trade Ideas backend scans continuously during market hours (9:35am - 3:55pm) and finds trade ideas in 3 ways:

1. It analyzes the returns of thousands of position setups used by all of us (underlying symbol, leg deltas, days to expiration, etc) and loads the current market data for the top performing position setups and compares them looking for opportunities using Reward/Risk, EV (expected value) and Alpha (EV / Max Loss).
2. It examines every option series expiring in 45 days or less that falls on a Friday and matches up every possible combination of legs at various delta values (.50, .45, .425, .40, .375, .35, .325, .30, .275, .25, .20, .15, .10) looking for opportunities.
3. It examines all current open positions in the platform looking for opportunities.

Trade Ideas analyzes all combinations of legs in a given option chain for a given underlying continuously throughout the day. Each combination of legs represents a tradable opportunity that is evaluated for suitability and inclusion in the Trade Ideas list. Every trade analyzed increases the overall count.

After ~1 minute a Trade Idea quote is considered stale. It is discarded and the process starts over again, reevaluating all possible combinations.

EV (Expected Value)

EV is a weighted average of all possible outcomes of a trade that serves as a powerful tool for decision-making and risk assessment.

EV represents the expected average $ profit per contact of a trade if you were to make that trade consistently over a long period of time. Similar to a casino's house edge, the more you make trades with a positive EV, the more likely you are to be profitable over time.

To ensure we have the most accurate EV possible, we calculate the probability and associated payoff for every profit/loss scenario between the strike prices in $0.01 increments.

Learn how we calculate EV and Alpha

Alpha

Alpha represents the expected average % return on risk per trade if you were to make that trade consistently over a long period of time. Many times higher EV also means higher $ risk making it difficult to compare multiple positions using EV alone without additional math. Alpha solves this by normalizing EV into a return on risk % which can be used to compare the expected outcomes of positions with different risk profiles.\

Alpha = EV / Max Loss

‍For example, #1 position with $5 EV and $50 max loss vs #2 position with EV $25 and $250 max loss. Is #2 with $25 EV better? Both are equal since you can open quantity 5 of #1 to get the same $25 EV with the same $250 at risk. Alpha normalizes both trades into the same value ($5 / $50 = 10%) and ($25 / $250 = 10%) for sorting and comparison.

Reward/Risk %

Measures the potential return of an investment against its potential loss. Typically, the higher the reward/risk, the lower probability of max profit.

Reward/Risk % = Max Profit / Max Loss

Filter all Trade Ideas

You can easily organize millions of trade ideas with a few key filters. Select one or more filters to focus your search:

• Watchlist - Focus on your favorite tickers only. You can add and remove tickers in your Watchlist at any time.
• Symbols - Include or exclude symbols to customize your search to specific tickers.
• Strategy type - Filter for bullish short put spreads, bearish short call spreads, and neutral iron condors.
• Symbol type - Filter for ETFs only. The default setting displays all stocks and ETFs available for autotrading.
• High IV - Select the High IV filter to see symbols with an IV Rank above 50.
• Days until expiration - Refine your search for multiple target DTE timeframes.
• Avoid earnings - Automatically filter any trade to avoid or target earnings. View Trade Ideas for tickers that have upcoming earnings. "Avoid earnings" will filter any positions that have an earnings announcement between today and position expiration to minimize risk exposure. Example: TSLA reports earnings in 9 days. Positions with more than 9 days to expiration will have an earnings announcement while holding the position (more risk). Positions with less than 9 days do not cross an earnings announcement, so they are displayed.
• Probabilities - Filter trades using their probability of profit (POP), probability of max profit (PMP), and probability of max loss (PML). Select from one or more percentile ranges in each column. Learn how we calculate probability.

Sort remaining ideas

You can sort and rank Trade Ideas for each column to find potential opportunities based on different preferences. All columns can be sorted by reverse order (highest to lowest or lowest to highest). Note that all data is updated every minute. Pricing and probabilities can change rapidly.

• Position - You can always click on a ticker to see more information about the ticker symbol.
• Leg/Delta - See the strike price and live delta of the trading opportunity.
• DTE - Sort trades by their days until expiration. Hover your mouse over the DTE to see the position's expiration date.
• Max profit - To know how much you can make on a trade, sort trades by the highest potential profit. Max profit represents the original credit received and is based on the underlying symbol expiring out-of-the-money.
• Max loss - If knowing how much you can lose on a trade is more important, sort trades by their max loss potential. Max loss represents the spread width minus the original credit received. All probabilities are based on the underlying's price at expiration.
• Reward/Risk - The reward/risk shows you your profit potential relative to the max loss. Reward/risk is calculated by dividing the max profit by the max loss. For example, a $6 wide credit spread with a $150 max profit and a $450 max loss has a reward/risk of 33%. The trade is risking $450 to make $150.
• Probability of profit (POP) - Probability of profit is the % chance the trade will make money. The probability of profit is automatically calculated based on the trade's break-even price(s). Probabilities above 50% are shaded green and probabilities below 50% are shaded red. Probabilities are calculated at trade entry assuming the position is held until expiration.‍
• Probability of max profit (PMP) - Probability of max profit is the % chance the trade will realize the full profit. The probability of max profit calculates the chance that all options will expire out-of-the-money. Probabilities are calculated at trade entry assuming the position is held until expiration.‍
• Probability of max loss (PML) - Probability of max loss is the % chance the trade realizes a full loss. The probability of max loss calculates the chance that a spread will expire in-the-money. Probabilities are calculated at trade entry assuming the position is held until expiration.‍
• Alpha - A proprietary calculation to help rank opportunities. We continue to monitor and tweak the calculation and may share details once we have a final formula.‍
• IV Rank - Sort all ideas by IV Rank. Quickly and easily find symbols with high or low IV Rank.‍
• Earnings - Rank trades by when earnings are to be announced next. Easily compare DTE to the next earnings date. Days until the earnings announcement is shaded red. Hover your mouse over the red box to see how long after earnings the position expires.‍
• Traders - This shows how many Option Alpha traders are currently trading that particular position.

Select a position to trade

Select your position to see the trade's details. The New Position screen displays all your trade's information, including the symbol, strategy type, expiration, and option legs. You can always edit any of the variables on this page. Note that changing the inputs will alter pricing and probabilities. All new information is immediately displayed using real-time live market data.

Confirm Order Details and SmartPricing

Adjust your contract quantity, set your Final Price, and choose your SmartPricing setting. The Final Price is the price for the final order placed by SmartPricing. It is the minimum price when selling or the maximum price when buying. The default price displayed is 100% of the bid-ask spread.

You can select from five SmartPricing settings:

• Normal - tries up to 4 prices, 10 seconds each.
• Fast - tries up to 3 prices, 5 seconds each.
• Patient - tries up to 5 prices, 20 seconds each.
• Off - turn off SmartPricing and submit a single limit order.
• Market - send a Market Order.

The final order is automatically canceled after two minutes if it is not filled.

Select a bot

All positions must be assigned to a bot. You can select an existing bot or create a new bot by clicking the '+' icon. Choose a paper trading bot or a live bot connected to your broker. Live bots will send an order to your broker to execute the trade in your account immediately after clicking 'Place Trade.'

Exit Options

Pre-set your position's management with 1-minute Exit Options. Define your profit target, stop loss, and expiration/earnings filters. Use Trailing Stops for ultimate custom control!

Trade Ideas is a great tool for options traders who want a better way of finding trading ideas without spending hours on researching trades. It gives you timely position-level data to make informed decisions about your trades without all the guesswork.

We have published multiple Research Insights blogs to analyze how pre-trade EV and Alpha values compare to realized P/L results using Trade Ideas positions.