Picking Your Perfect Trade Is Easier Than You Think
Picking Your Perfect Trade Is Easier Than You Think
Earlier this month, we looked at how important it is for an investor to zoom out, in order to zoom in when it comes to trading. Meaning that in order to find the best trade for a given bias, it would be most prudent to first consider all of the options on the table – every strike price, strategy and expiration month.
Doing so by hand is exhausting labor and you may not even find your perfect trade until it’s too late! Thankfully, OptionParty makes screening a multi-minute affair, not a multi-day ordeal.
Although narrowing down by opening up is an important task, that’s only half the battle. Once a trader lands on the correct strategy and tailors a trade to their preference – based on three very important probabilities: probability of profit, probability of target return and probability of total loss – they still have to choose the best trade for them.
This task isn’t as difficult when only 10 or 12 trades meet the investor’s criteria. But what if there are 20, 30, 50 or 100 different choices? Investors would have to manually sort through each one – a task that can be as demanding as screening them by hand, assuming the proper analysis is applied to each.
Thankfully though, that again doesn’t have to be the case. Thanks to OptionParty’s ranking system – Party Rank – users are saved a tremendous amount of time when it comes to screening and ranking trades. The only thing they have to do is make a decision.
Great products are born from solving problems and that’s exactly what OptionParty has done. Screening was an issue, but so was ranking, which is difficult because ranking each trade depends on a number of different things, such as expiration, strategy, risk, etc.
Once a ranking algorithm was devised for this deeply complex issue, individual users’ tastes were factored into the mix. Because you and I, or you and any other trader likely have different risk/reward appetites, that had to be taken into the mix as well.
That was achieved with the two “sliding bar” inputs that OptionParty devised. As you can see below, users can skew more towards being aggressive and achieving their target return, or they can be more conservative and focus on avoiding total loss. It’s not an all-or-none situation either. The sliding scale can rest at any point in between, so it’s very custom-tailored towards each investor.
Between the risk/reward scale and various other inputs, OptionParty is then able to calculate what the best trade for an investor really is. From there, investors can choose which suits them best. Let’s have a look:
In the first scan, we enter our desired target return and the minimum or maximum probability amounts for each respective category. We adjust our slider to the more aggressive approach, input our preferred strategies – in this case, credit trades like cash-secured puts and bull put spreads – and other criteria like length of trade and maximum position amounts. then we scan for the results.
As you can see from the results above, the system’s goal is tilt towards achieving our desired target return. As a result, the “Return on Risk” tends to be higher, alongside a higher “Total Loss Probability.” Higher reward of course, equals higher risk.
The “Party Rank” results are found in the far right column and this is where the algorithms go to work shaping the best trades based on the investor’s input. Of course, just because the choices are ranked, doesn’t mean the #1 result is necessarily the best choice in all cases.
For instance, perhaps the investor doesn’t like trading ETFs and has an accurate history with Occidental Petroleum, #5 in this case. In this scan, there were 332 results. So #5 is still a pretty darn good choice.
These results were derived with the more aggressive investor in mind. But what happens when we tip the scales to the more conservative side? Let’s see:
A few things jump out right away following the second scan. First, notice how the “Total Loss Probability” and “Return on Risk” results are much lower than in the first scan, while the “Target Return Probabilities” and “Profit Probability” are generally higher
It’s quite obvious that although both scans involve most of the same securities, that the trades are certainly less risky in the second scan. You may also notice that the pre-scan components are all the same. The only thing we changed in this instance is on the sliding bar, which impacts how aggressive or conservative we want to be.
The Devil Is In The Details
Screening is an important and helpful component when looking for a trade. There’s no question in that. But what good is a trade screen that returns hundreds, or heck, even dozens of results that investors again have to dig through to find the best results.
Furthermore, how good is a ranking system that can’t be adjusted toward certain investors? Too risky and it mitigates the conservative investors; too conservative and it leaves out the aggressive investors. Smack dab in the middle may leave both types of traders in the dark.
By having the control of a broad or specific screener, combined with a powerful, customizable ranking system, OptionParty has formulated an ideal way for investors to find trades in a quick and easy way, while maximizing their ability to profit and sharpening their trading edge.