Tradestation web trading option spreads


Before we can make money in the options market, we have to locate an opportunity. There are many ways of doing this. This sounds pretty straightforward, and it is. But several steps are involved, as listed below. For this step I used the Scanner tool in the Tradestation software platform. That is the trading software that we use in our trading classes, and is also the software that Tradestation web trading option spreads use for my own trading.

Each of these was near its highest Implied Volatility level of the last 12 months. Outside of the Tradestation platform, most other option-trading platforms, such as Think Or Swim and Options Express, also offer some kind of screening by implied volatility. Other sources for such scans are available online, although none is free as far as I know. The channel boundaries appeared to be good demand and supply levels.

This was a neutral price picture — one where we tradestation web trading option spreads bet that the stock would stay within a range, for a limited time. In times of high implied volatility, the options are very expensive, so we want an option- selling strategy.

We want to sell these expensive options and watch them expire worthless, pocketing the credit we receive for selling them. In this type of strategy, a fairly near-term expiration is lower risk; in this case the August expiration that was 30 days out was chosen. For a neutral, range-based outlook, the Iron Condor is a good choice. If the price had been near a demand zone or a supply zone instead of midway between them, we would have chosen a strategy that works well when we do have a price bias.

So far, this position would be called a short strangle. That is a viable strategy on its own; but with both a short put and tradestation web trading option spreads short call, tradestation web trading option spreads has unlimited risk in both directions.

Our long protective options would also expire worthless, being even farther out of the money. This would be our maximum profit. We would just have to wait for expiration to earn it all. In the diagram above, the shading indicates profit or loss if AMT were to be in that area at expiration.

The right side of the chart ends on the August expiration date. Below is another diagram for this trade. In the Payoff Graph above, the green line plots the profit or loss the trade tradestation web trading option spreads yield at expiration day at any given price of AMT.

Notice that the winged trapezoidal shape of the green plot above is the same as the shape enclosed by the thick green lines on the price chart in Figure 2, but turned sideways. For comments or questions on this article, contact me at rallen tradingacademy. Fair Housing and Discrimination: Tradestation web trading option spreads This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever.

Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter.

Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.

When we trade stocks, or futures or Forex contracts, we always need a plan for each trade. It includes an entry price, as well as a plan for how we will exit the trade. The exits include one or more profit targets, as well as a stop loss. Most option trades also require stops. There are a few exceptions — for example, a Straddle trade, which includes both a long put and a long call, is helped by price movement in either direction, and the more movement the better.

So it does not need stops. But straddles are one of a handful of exceptions. Most option trades do need them. Stops on options are not quite as straightforward as on other instruments. Many, if not most times, we need to base our stop-loss order not on the price of what we are trading the optionbut on the price of something else the underlying stock.

Furthermore, our option position might include multiple components, or legs; if so, our emergency exit orders need to tradestation web trading option spreads the whole position, not just one part. If the stop conditions are met, we might need to close out tradestation web trading option spreads, three, four or more separate options, and maybe a position in the underlying stock as well.

How do we do it? Two things are needed in the trading software. The first is Conditional order capability. Some brokers call these contingent ordersor something else. Tradestation, for example, calls them activation rules. Think or Swim calls them order conditionswithin its Order Rules function. That is, tradestation web trading option spreads our stop condition is met stock price goes beyond our stop price tradestation web trading option spreads, we need to do not just one thing sell this optionbut several sell this option, and buy to cover that option, and sell this other one, and buy to cover that other one, etc.

Different trading software platforms approach this in a couple of different ways. In contrast to this approach, Tradestation tradestation web trading option spreads the Order-Sends-Order functionality to do the same thing. When that is done, then sell to close my long put. The difference is that Tradestation can not combine the idea of an activation rule with the idea of a multi-legged order. It can do each of those things, but not together. We get around this by basing a single order on an activation rule; and then using OSO to make that order send another order for another option, and so on until tradestation web trading option spreads legs are done.

That takes a few more clicks, but is not difficult. Fortunately in both of these platforms, once you have queued up all the elements of the stop order, including the conditions based on the underlying, you can save and reuse the plan.

Now for a specific example. This involves owning an underlying stock, and selling a call option on that stock. This is a positon that really needs a stop — we own the stock, and if its price drops, we lose money. If it drops beyond a certain point, we need to sell the tradestation web trading option spreads. And if we sell the stock, we also need to buy back the short call. Most trading platforms will not allow you to enter a stop order on a stock if you have sold calls against it.

I received a question about that from a reader this week. I have sold covered calls against the stock. Tradestation will not allow me to enter a stop market order to sell the stock, since that would leave the short calls naked.

How can I create a stop on this position? The trick is to use OSO to create an order to buy back the short call, and then have that order send a separate order to sell the stock.

That second order will not fire until the call is bought back, so there is no problem with potentially naked short calls. Here are the steps:. On the option chain, click on the particular tradestation web trading option spreads option that you have sold, to load its symbol into your order bar.

Highlight the symbol in the order bar, right-click and select Copy. This is just to avoid having to type a long option symbol later.

See below for what appears next:. Note that changing the symbol on this screen is quirky. You have to click in the Symbol field, type a character, backspace that character out, and then right-click and select Paste.

Do that in the Symbol field, pasting in the symbol for the call option. See next picture below. This should now look like the example below. Click OK in the Activation Rule window when done. If you do stage it, you can later retrieve it from the Staged Orders tab of the Trademanager window and edit it and re-send it, if you need to.

If you just click Place Order s without staging it, the system will try to send the orders; but if there are any errors you lose everything and have to start over. This is how the covered call stop is accomplished in the Tradestation platform, For other trading platforms, the steps may be slightly different.

But it can be done in any platform, as long as there is the capability for conditional orders and also for Order-Sends-Order.

For comments or questions on this article, contact me at rallen tradingacademy. Disclaimer This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever.

Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter.

Future results can tradestation web trading option spreads dramatically different from the opinions expressed herein.

Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.