Without consideration to there being a rule preventing it, my systems architect and I briefly considered total automation but then we realized it wouldn't work with our system because the opening option price can often times gap down under our entry price. This totally skews the trigger points of the bracket order. Example: Lets say the program automatically submits a bracket that looks like this: SPY May130 Put Buy Limit: 2.00 Sell Limit: 2.60 (30%) Stop limit: 1.50 (-25%) Many times in this high volatility of the last several months a trade option like the SPY May130 Put above, will open with a negative gap at 1.60 or lower. The bracket "limit buy order" gets filled at approximately 1.60. "But," now the Stop order (at 1.50) in the Bracket is only .10 away from getting stopped out! (way too close) and the Limit sell order (at 2.60) is unreasonably too far away from selling with a decent probability of profit. What we do is this: The signal is automated and the bracker order (or OCA) is semi-automated. We wait for the opening price to occur before placing the order. If the option opens at the same price or higher then the computer generated entry price, we transmit the bracket orders and go fishing (metaphorically). If the option opens lower then the computer generated entry price, we manually re-adjust the buy limit to the opening price and then manually re-adjust the sell limit for +30% and the stop for -25% and then transmit and go fishing (again metaphorically). Hope that was helpful.
Jeff thanks but I was not asking about your system only answering the original posters question. I am in the camp with the 99.99% of the rest of the world who says that options are a derivative of the underlying not of the previous prices.
how to calculate the risk and reward of option strategy could we backtest the strategy like the future strategy?