Dynamically Adjust Profit Targets The Week of Expiration

It’s a great idea to automate your profit targets. But sometimes your positions don’t hit their profit target before expiration. As time runs out, you might be willing to take a smaller profit to exit the position.

Before automation, you had to manually adjust your position’s profit targets based on time until expiration. Now, you can easily add this management process to any of your bots’ monitor automations.

For example, you can use a simple decision recipe to check if the position expires in less than five market days. If the position has more than a week until expiration, you can try for a higher profit target, such as 50%. However, as the position nears expiration, you could use another decision recipe to target a lower profit and close the position for a 25% profit.

This is a great example of how bots can dynamically make decisions using different variables. Monitor automations can evaluate multiple criteria and respond accordingly, so you don’t have to constantly watch your portfolio, adjust targets, and re-send orders.

Transcript

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In this video, I want to show you how to dynamically adjust profit targets the week of expiration. Typically, what happens for most people who are not using automated trading bots in Option Alpha, they go ahead and they start making dynamic adjustments to their profit targets as positions near expiration.

So, for example, as a position starts to approach expiration you might be willing to take a 10% profit the week of expiration, vs. further out on the timeline you're looking for a 50% profit. Well, all this can be easily added into your bots.

Inside this demo automation, we'll show you how to do that here with a quick example. First thing that we'll do inside of our monitor automation is we'll add a repeater. Repeaters are great because they loop through all the positions in the bot, and individually pull in the information and the profits and expiration of each position to manage them all one by one.

Now we'll add a decision. The first decision that we'll add here is going to check and see if the position actually does expire in the next seven days. We can go down to this recipe here that the position expires in a certain amount of time. So, we'll add this one and we'll link the position input to any position that the bot is currently repeating through. Next, we'll check and see if the position expires in less than seven days.

Now, you can use seven days as seven full calendar days or you can use five days to get you inside the five days of the week of expiration. Whatever you want to use, or however you want to use this inside of your bot is totally up to you. We'll just use five days so that we know we're in the expiration week itself. Once we add this, we simply click save and it is now added to our automation editor. From here we can now start to dynamically adjust our profit targets.

So let's say that the position does expire in less than five days. Well, we then can make a decision to see if we have a smaller profit target. We can go down here to the position properties, and we can check and see if the position premium has gone down by say, 25%. So, let's assume that we're trading some option selling strategy, like a put spread or an iron condor. We can check and see if the premium goes down by a certain percentage which would signify that this is a potential profit. And we can check and see that it goes down by 25%.

Again, this would only be a check that we would make when we're inside five days to expiration, essentially inside of expiration week. If the position did decrease by 25% since it was opened, and the position expires in less than five days, then we want to close the position. So, we add a close position action, and now we have one side of our automation editor built out.

But let's assume that we go down the other path here - the "no" path. Let's go through the logic when positions don't expire in five days. If the position doesn't expire in five days, we might be willing to hold on to the position for a bigger profit target. In our case, we'll use an example of holding on to the position and trying to get a 50% profit on the position. So, we'll use the same position recipe here to check and see if the position premium has decreased not by 25%, but by 50% this time.

This means that we're taking position profits dynamically based on whether we're in expiration week or not. Here we can then check and see if the position premium went down by 50% for our short premium strategies, and if it did, we can then again go ahead and close the position. This is a really easy and very simple way to let the bots make all of these decisions dynamically for you inside of your monitor automations.

Now when automations run and repeat through each position, it'll check and see if each position expires in less than five days. Those positions that do expire in five days go down the "yes" path, and attempt to take positions off when they reach a 25% profit.

Anything outside of expiration week, is going to try for a 50% profit. And if it reaches that 50% profit, it will close the position.