Automated Option Trading : Create , Optimize and Test Automated Trading System
This book presents a concept of developing an automated system tailored specifically for options trading. It was written to provide a framework for transforming investment ideas into properly defined and formalized algorithms allowing consistent and disciplined realization of testable trading strategies.
Extensive literature has been published in the past decades regarding systematic, algorithmic, automated, and mechanical trading. In the Bibliography of this book, we list some of the comprehensive works that deserve special attention. However, all books dedicated to the creation of automated trading systems deal with traditional investment tools, such as stocks, futures, or currencies. Although the development of options-oriented systems requires accounting for numerous specific features peculiar to these instruments, automated trading of options remains beyond the scope of professional literature. The philosophy, logic, and quantitative procedures used in the creation of automated systems for options trading are completely different from those used in conventional trading algorithms. In fact, all the components of a system intended for automated trading of options (strategy development, optimization, capital allocation, risk management, backtesting, performance measurement) differ significantly from their analogs in the systems intended for trading of plain assets. This book describes consecutively the key stages of creating automated systems intended specifically for options trading.
Automated trading of options represents a continuous process of valuation, structuring, and long-term management of investment portfolios (rather than individual instruments). Due to the nonlinearity of options, the expected returns and risks of their complex portfolios cannot be estimated by simple summation of characteristics corresponding to individual options. Special approaches are required to evaluate portfolios containing options (and their combinations) related to different underlying assets. In this book we discuss such approaches, describe systematically the core properties of option portfolios, and consider the specific features of automated options trading at the portfolio level.