Automated trading for options

Discussion in 'Automated Trading' started by Corvustrust, Feb 22, 2011.

  1. Hello -

    Does anybody have experience/feedback on automated trading systems for options?

    I am in particular looking for software with:
    - access to source code / ability to develop new features
    - robust interface to download options and futures data in an automated way

    Any help is greatly appreciated!

    Thank you
  2. Most of my trading is automated options trading. Everything is home grown though. I've a mysql database which contains a ton of old options data and a java framework to backtest and execute strategies. You'll find that it's hard to find good option data sources, I don't think there are any free ones out there. I bought my data from about two years ago. I've about 390 million daily quotes on various symbols, before and after penny option introduction. The quote source is ok, not perfect by any means, so when you backtest you'll find a lot of exceptions.

    If you trade with IB you'll be able to download option quotes 12 month back. Unfortunately that's not a whole lot but it's free.
  3. This is from the IB user agreement. Doubt it is a big deal, but you should know all the rules...

    1. It is a violation of U.S. option exchange rules for a customer, acting alone or in concert with
    others, to send an order to an option exchange in order unlawfully to manipulate the execution price
    of a separate order on that exchange or on another exchange.

    2. It is a violation of U.S. option exchange rules for a customer effectively to act as a market maker by
    holding itself out as willing to buy and sell securities on a regular or continuous basis. In determining
    whether a customer effectively is operating as a market maker, the exchanges will consider, among
    other things, the simultaneous or near-simultaneous entry of limit orders to buy and sell the same
    security; the multiple acquisition and liquidation of positions in the security during the same day; and
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    the entry of multiple limit orders at different prices in the same security.

    3. It is a violation of U.S. option exchange rules to transmit orders that have been created and
    communicated electronically without any manual intervention. Customers using IB’s Trader
    Workstation therefore are required to click a mouse, hit a key, or do some other manual action to
    transmit option orders. Customers with a Computer-to-Computer Interface or who use the IB
    Application Programming Interface (API) represent that they will not allow orders to be created and
    transmitted automatically without manual intervention.
  4. Thanks Wayne, adding a manual control into my UI.
    I wasn't aware of this, definitely appreciate your input !!
  5. Hi, I got questions on how to create an automated options strategy to trade stock options.

    I am familiar with discretionary trading with stocks and options. I now want to begin to design an automated system.

    Do you guys that have their own automated option trading system have a good lead you can share with me for where to start and research on how to develop an automated options strategy and steps for implementing it?

    Im pretty much starting from scratch when it comes to automated trading.

    What programs do you use to develop your strategy?
    What is your winning percentage with your options strategy?
    How long are your positions open on average?
    How many trades do you make per day on average?
    What platform do you trade with for your options strategy?

    Anything will help.

  6. I don't know why there is such an archaic rule like this. Probably to try and protect the profits of exchange members?

    FWIW I'm not sure how the exchange or IB could tell if a "mouse click" was a human, or program-generated (except if it happened very fast). And in any case, sending in option orders faster than 1 every second or two cause "pacing violation" errors and the orders are rejected. At least they used to. It's been awhile since I messed with it.

    Good trading to all. :cool:
  7. I wonder if the autotrading restriction is something particular to IB? There are a number of signal services that offer options autotrading with various brokers. Here's an autotrade service that handles options and works with IB: Maybe they have someone there whose job it is to be the designated human button-pusher :)
  8. This is the come back of the space bar trader ;-)
    Hire a secretary and pay her her to click on a mouse all day long...
  9. For history buffs,

    In the mid to late 90s, the SEC was pushing to force listing of options on multiple exchanges. Up to that time, each exchange had a monopoly on "their symbols". At the same time, anti-trust considerations prevented hand helds on the floor and generally restricted the various exchanges from seeing or trading against each other's quotes. Additionally, the auto-ex sytems available to retail traders allowed 20 contracts (sometime 10 or 50) per order to automaticaly execute regardless of the size bid or offered. This allowed a retail trader to send a series of orders electronically to hit a favorable price while taking down the hedge or offsetting position on another exchange via their auto-ex system. Thus the RAES bandits were born named after the CBOE's auto-ex system. A bandit traded on a retail basis, had feeds from all the excahges, the ability to analyze the market based on each quotes arrival and could route orders to specific destinations. When a target was identifed, the computers fired their orders. Typical positions included pure arbitrage (sell at a bid higher than another exchange's ask), conversions, reversals, boxes, flys, etc.. All were typically risk free or essentially free lottery tickets.

    In this process the exchanges were sitting ducks and were quick to fight back. A number of traders were black listed and occasionally accused of market manipulation. Eventually, things got a little ugly. Sometimes you would send an order which magically wasn't fillled until the other side of the transaction disappeared. Of course, if you canceled, it would later execute at the worst possible price with a too late to cancel notice. The exchages were sanctioned at the time and given their wrist slapping.

    A number of new regulations came down including speed bumps between orders and the requirement for manual order entry. The rules varied by exchange and have been moderated as techology has changed the game and made the market efficient.
  10. Thx for the history lesson, it helps understand some of this !!
    #10     Feb 26, 2011