Quantization or programmatization in the derivatives market is developing more and more high-end, especially with the improvement of various IT tools and technologies, so that the programmatic trading technology of the international market can be quickly moved to the Chinese market. Well, despite the regulatory differences between China and the international market, the tolerance of programmatic trading, there is no denying that programmatic transactions will only be more and more, the technology is getting better, especially the amount of data is increasing, the speed of transactions is increasing, the human reaction is simply out of reach, only with the help of quantitative means to survive in the derivatives market.
The first job of programmatic trading is to collect data, unless it is a stock alpha, otherwise the data on the futures side is focused on the data cleaning and sorting of the main contract, and the amount of data is not large, even a tick, but also an acceptable range. However, the data of options, compared to futures, is not at all a scaled, but there are several monthly options, at least 10+ buy and hold options and 10+ put options per month, which equates to more than 150 contracts simultaneously, and will not increase the number of contracts as the market fluctuates.
After the data collection is stored, it is possible to calculate special indicators. In addition to simple listing orders, transaction prices, transactions, and holdings, more indicators need to be processed. If the trading strategy is to be carried out involves volatility or time factors, it is necessary to perform calculations on the relevant contracts in terms of similar pricing formulas.
Monitoring trading opportunities: risk-free, low-risk, and directional trending
The types of trading options are much more than futures, if you divide the risk from low to high, respectively risk-free, low-risk hedging, directional trading, to talk about the monitoring of trading opportunities, first of all, you need to know what is monitoring, some are dead rules and formulas, some are completely flexible need to create their own trading art, each has different needs to monitor the angle, below divided into these three simple explanations.
1, risk-free leverage: is to find leverage opportunities from the Put-Call Parity formula, which is a dead giveaway, as long as the calculation of the formula does not go wrong, it is not too much of a problem, when monitoring in the tray, it is necessary to quickly calculate the best leverage contract and space between multiple options contracts and indicated items in the same month, and then give quick tips.
2. Low-risk hedging: This section is mostly a volatility-class trade, which can be based on the matching of the same month's volatility-rate smiley face curve, observing the divergence of the individual contract's volatility rate, making volatility-rate convergence trades, and also the distortion and convergence of the volatility-rate monthly structure between different months. This section of the trade is at least two legs of options contracts, many risk factors are hedged, but not completely risk-free, so it is called low-risk hedging.
3. directional trend trading: This type of trading should be an extension of the strategy of futures CTA, originally based on the analysis of the price of the futures judgment and identification, looking for a relatively favorable point of exit to make a profit from the wave or range shocks, traders need to compile relevant indicators to specifically form a trading logic and monitor, after adding options, the original trading logic can be added indicators specific to the option, such as the volatility rate or the buying and selling power of the option trade, etc., increase the trading dimension, improve the trading model.
Trade execution: risk-free, low-risk hedging and trend trading
After the monitoring of the above three types of trading opportunities, the specific transaction is executed, as described below.
1, risk-free arbitrage: after the opportunity is discovered, 3-4 contracts are quickly delivered at the same time, while preparing for the withdrawal or remedial reaction of any leg that is not completed, these steps are already controlled by the program. In addition to the stable execution process, the fastest speed is needed, because everyone is watching, the opportunity is fleeting, only the first place, the second is zero points.
2, low-risk hedging: This type of trading opportunity is not dead, so the monitoring of the trading opportunity is based on their own perception, so everyone will not have exactly the same trading time, not crowded together, but still involved in multi-legged trading, so quick delivery orders and follow-up processing, similar to risk-free leverage.
3. directional trend trading: This type of trading is relatively easy and usually does not have a multi-legged situation, but it is necessary to note that the original directional strategy of the CTA, when issuing trading signals, requires converting the position of the futures into the appropriate option, perhaps all of it into a buyer's strategy, that is, when multiple signals appear, converting the futures into buy and hold options; when there is an empty head signal, put the buy and hold options into a standstill, while buying down options.
After the trade, the position in hand requires relevant risk management, risk-free hedge probabilities do not need to be managed, as long as the use of funds is taken into account; low-risk hedges require in- or post-discount monitoring for several risk factors, as to how the critical points of each risk factor are set, how to adjust the position, depending on the metal assets and preferences and individualized arrangements of the trading team; as for directional trend trades, as long as the ratio of capital use is taken into account, other risks are likely to be reflected in the original trading logic, if the risk of the stock is found to be large, it may indicate that the original trading logic is no longer applicable to the current price behavior, and the logic needs to be modified.
The degree of dependence of options trading on programming is great, because more volatility and time dimensions can be observed, and at the same time more of these types of trading methods, it is necessary and indispensable work to trade through programming or quantitative means, and I feel that such quantitative preparation can allow the trading team to better understand the price behavior of the indicators, adequate observation of the use, multidimensional trading monitoring can make the trading system more mature, not only contributing to the growth of the trading team, but also contributing to the development of the whole market.
Translated from Options House