As you go deeper into options trading, there are always ways you can use technology to keep improving, no matter your experience level. There are so many opportunities to leverage bots to your advantage now that automation is available.
SmartPricing places timed limit orders in a sequence, traversing the bid-ask spread until you reach your final price. Simply said: it finds the best possible price for your order.
In this episode, I walk through four "wicked-smart" ways you can leverage our proprietary SmartPricing technology to send orders intelligently (plus a bonus idea you’ll love!).
If you're already autotrading with Option Alpha, you'll learn some new techniques that will help improve the efficiency of your bots and automations. If you're not trading with bots yet and are still entering open and close orders manually, waiting for trades to fill, canceling and replacing orders, chasing price, and settling for standard limit orders, you'll love how much time you save when using SmartPricing.
Sign up now for a FREE 30-day trial to see SmartPricing in action.
1. Adjust the core SmartPricing setting
There are three SmartPricing settings:
- Normal - starts at approximately 50% of the bid/ask spread and works towards 100% through four evenly distributed prices in 10-second intervals.
- Speedy - starts at approximately 50% of the bid/ask spread but works towards 100% with three prices in 5-second intervals.
- Patient - starts at approximately the mid-price and tries up to five prices, waiting for 20-seconds at each price before moving to the next price.
Changing the core settings is an easy adjustment that lets you control how quickly the bot will work through each price level. You can always choose to turn off SmartPricing and use a single limit order.
For example, when market volatility is high, you could use the 'Speedy' setting to exit positions quicker and avoid P/L swings. If the market is less volatile, you may want to use the 'Patient' setting and allow the bot to maximize a trending position's potential.
2. Adjust the final price and bid/ask spread percentage
The final price is the last price in the SmartPricing order sequence. It is the minimum price when executing a sell order and the max price when submitting a buy order.
The default final price setting is 100% of the bid-ask spread. You can manually input the range for any value between 50%-100% or set the value as a dollar amount. These variables can be edited and customized at any time in every order action for different entry and exit scenarios.
For example, you can adjust the final price the bot will use if an unusually good opportunity comes along. Maybe your normal setting is 60% of the bid-ask spread. If you have a great setup that doesn't occur often, you could change the final price setting to 80% of the bid-ask spread to ensure you don’t miss the opportunity.
SmartPricing and final price settings are customizable and can be used for all order actions in any automation type.
We also suggest using a bid/ask spread filter before opening or closing a position. There are fluctuations in all products and options, so using SmartPricing and opportunity filters is a best practice to leverage automation technology when dealing with bid-ask spread volatility.
3. Use the trade price calculations to set your final price
You can also use a calculation to set the final price as a function of the position’s opening price and allow SmartPricing to calculate for you on each position. The bots intelligently reference the original opening order execution details.
For example, for credit spreads, you can input the trade price at x .5 to set the final price at 50% of the entry price. SmartPricing will still try for better pricing if available but won’t close a position for less than a 50% profit.
4. Deploy a bid/ask spread waterfall strategy
This advanced method combines multiple SmartPricing types, percentages, and trade prices.
You can tell the bot exactly how to send orders and when to stop sending orders using different SmartPricing settings that are relevant and dynamic for current market conditions.
For example, in this bot’s monitor automation you’ll see the first decision in the waterfall is to evaluate if the bid/ask spread is less than the Level 1 input ($0.15 in our defaults). If the bid/ask spread is $0.23, it is not less than $0.15 and, therefore, would result in a ‘No’ decision for the Level 1 check. Had the current position’s bid/ask spread been less than $0.15, the bot would go down the ‘Yes’ path and send an order to your broker to close using Level 1 price settings (100% of the bid/ask spread in our defaults).
Continuing down the ‘No’ path since the spread is not currently less than $0.15, the bot then evaluates if the position’s bid/ask spread is less than Level 2 input ($0.25 in our defaults). The bot would continue through the automation’s bid-ask spread waterfall to ensure you don’t close a position with a wide spread.
Notice that as the spread becomes wider, the SmartPricing settings for the final price are adjusted to control slippage when exiting the position.
5. Use a ghost order
Here is a bonus idea! This is another great example of using SmartPricing for unique opportunities. The ‘ghost order’ is simply a close position action you add to the end of a 'No' branch in a monitor automation.
Typically, monitors close a position, open a hedge, or, if your criteria are not met, the automation ends and runs again at the next interval.
But, here’s a wicked cool idea you can use to to turn off SmartPricing and use a standing limit order in between automation runs to potentially exit a position that otherwise wouldn’t have closed.
Say your position hasn’t reached a profit target. You can attach a final price setting that sends a limit order to your broker and stays active for 5 mins, just in case your position reaches the target price after the monitor runs. Essentially, the bot always looks to close a position at your preferred profit target and never leaves an empty 'No' path at the end of an automation.
This concept is discussed in more detail during the ’Wicked Smart Automated Trade Management Ideas‘ workshop at the 8:50 mark.