Quant/Algo system for scalping stock options?

T

Trace Busta

I would like to design a trading algorithm specifically for stock options. I have experience in C++ and Matlab, although I haven't used either in 10 years. I'd be willing to learn whichever language is necessary and switch to a broker that this system will work with. I currently have IB (I'm hoping I can stick with them).

What I'd desire in my trading system:

1. Identify when the trigger conditions are satisfied in the underlying shares.
2. Find and buy option contracts (pre-determined expiry) at a strike that has low bid/ask spread when buy triggers are met.
3. Ideally I would also be able to specify a minimum Greek Delta value that must also be satisfied.
4. Exit contract at pre-determined sell trigger.

Simply put, I am not fast enough with the mouse when I want to enter the option for a quick scalp trade. When my triggers are hit, the stock moves and the options move even faster! Multiple times I have lost out on potential profit because I couldn't get the order in fast enough. Very frustrating.

The main problem is quickly finding the right strikes with low bid/ask spreads and Delta values high enough to make the entry worthwhile. These are quick trades and I don't like holding the options for more than a few minutes, so every second is crucial. Especially the timing of the entry.

If anyone knows if this is possible and can help give advice on what language I will need to learn (with tutorials or examples) and what broker I will need to switch to if IB isn't suitable it would be greatly appreciated! I'm willing to put in the time and effort to make this happen. Thank you.
 
IMO, if your are looking to scalp options based on a technical move in the stock, you will be giving up a lot of your vig in the market with the option spreads, even tighter ones. You will pay that in and out. You will have to be right way too often including commissions and regulatory fees and option decay.

With that said, whatever you build, as long as you access the option markets using an API like TWS, as you like IB, you can write whatever you want and it will be compatible.

If you were not looking to build your own platform, you could combine a good charting platform with triggers and an automated option platform like Actant ExStream with scripting, and accomplish what you are looking for with off the shelf programs, but this path is expensive and probably not what you are looking for.

http://www.actant.com/exstream/


bob
 
This new platform seems promising. The site looks retail, but I can't imagine these features being available to the retail public.

http://optionworkshop.net/

Some features to note:

  • Flexible-configurable delta hedger
  • Flexible contract-based market-maker
  • Built-in scheduling support for all those automation tools
  • Pricing model scripting

Bob, please take a look at it if you have the time. Your clients might like it. Thanks.
 
xandman,

I took a "quick" look at their website. The question in this forum was about stock options not options on futures. Option Workshop appears to be a tool for options on futures where you can connect to three APIs, IB, CQG or Rithmic. I'm guessing, without using it, doing a demo or speaking to them, which is important before judging them, that their target market is a single active trader that needs automation but not low latency. That does not mean they can not be better than other platforms, just that they are not a direct FIX connection, so slower than those that are certified with the CME iLink.

There are a lot of choices out there for options on equities. Much less for options on futures. Glad to see they are offering another choice. We can offer both Rithmic and CQG APIs that can work with this.
 
Oops, I saw IBKR and I thought stock options. I keep forgetting that people trade futures on IBKR. I will be doing a Beta in about a month or so.

Thanks for your time.
 
I assumed your question was about scalping options in a customer account. If you want to build your own trading system for market making and connect directly to an option exchange as a member, that is a very difficult task. I'm going to continue to assume you mean in a customer account.

Many exchanges do not allow priority customers, those order go in front of firm and professional customers, to make two sided markets. You will be displacing members. So you can only enter either a buy or sell order in a strike. IB will not allow you to enter both a buy and sell order, even on exchanges that allow it. Also, there is a designation of professional customer. If you enter 390 order per day, on average, over a quarter, you must claim Pro-cust status. You lose priority status, you pay higher fees at some option exchanges but you CAN enter orders on both sides of the market. If you claim this at IB, they will not allow you to enter two sided markets.

A broker dealer, registered MM, must make two sided markets on the exchange they are registered at, for the options they have registered for, and be a minimum size. However, they don't have to make competitive markets. BTW, these rules are not "federal or FINRA rules". They are exchange rules that they file with their regulator and the SEC, for approval. FINRA is only one regulator.

Send me an email if you want to discuss this further.I can give you a call tomorrow.

Bob
 
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