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Marek Liyanage

Options Scanner in TradeStation

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Over the Summer I switched from DAS Trader Pro to TradeStation s/w...one of the main reasons was the lack of resources for trading Options and Futures in DAS s/w...happy to report that all is wel and the migratoin proved to be not just a profitable move but also saved commissions and platform fees. Now the fees were an aside bc nothing comes for free and there are a few drawbacks that were discussed in various other threads. None of these drawbacks concerned me much (e.g. pre and post market trading) since  my focus was expanding the instruments and tools available within the s/w ecosystem and I feel TS has a lot more to offer there (non-US residents don't have the same access to TS so pls check with sales if you reside outside the US).

Which brings me to options scanners which are simply not available in DAS....you need to use some third party s/w or ToS to be able to find the option contracts in play on any given morning at the market open.

 

TradeStation has a number of pre-built option scanners that are useful for break out traders who like to trade the market open like many of us. Because there's a gazillion contracts for each stock you need to find the correct strike price that's in play. A simpler work around is to watch the stocks that light up on TradeIdeas and then find strike prices close to the current price and look up those contracts on the montage. This still doesn't tell you much about an important factor: liquidity. So this is really  not a very good way to get into business bc your trade might end up losing bc you picked the wrong strike price and just lacked the liquidity to get in and get out quickly so maybe you got chewed out on the spread or maybe it just didn't move as well or in sync with the underlying stock.

 

Being that speed if of essence for break out traders at the market open TradeStation scanners offers the necessary tools that let option break out traders quickly scan for contracts gapping or moving quickly out of the gate at the market open by, showing % change, $ change and volume for each contract specification within each of the prebuilt scanners.

 

The screenshots below shows how the scanners were populated at the market close of Friday so obviously they will refresh empty on Monday morning and begin populating as market activity rises at 9:30ET. 

 

I apply price, strike price, volume, % and $ change filters in order not to get overwhelmed with tickers showing up on scanners. 

One big piece of information that sets apart option break out traders from other option traders or traders of the underlying are the delta and gamma of the options contract. Options breakout traders are not only hunting for momentum in the underlying stock but also looking for contracts with high delta and gamma.

So what are delta and gamma....well that is a separate topic but it helps to think about how the options premium of a contract will change as the stock approaches or exceeds the strike price...e.g. a weekly expiration contract might be worthless at Wednesdays close bc it's OTM but then suddenly sky rocket bc the stock gapped up 10% in pre market on Thursday and moved thru the strike price...so something that was worth a few cents might suddenly be worth several dollars so increased in value by several hundred or thousand percent. If you are more interested read up a bit about delta/gamma and look up ROKU contracts that were on the move last week as ROKU moved 10%. They increased by 400% in value...went from $2.5 to $10. ROKU contracts are very liquid so if you had seen ROKU moving and picked the correct contract you could probably reasonably make 25-50% of that move which amounts to about 200-500 per contract. First grader math shows the sky is the limit and especially for small accounts e.g. with $2,500 you could well make a few hundred $$$s with acceptable downside risk. Especially, if you already are a momentum scalper like Andrew or some of the other traders in the chat room.

There's a few other threads I started a while back on TradeStation...take a look at those bc there were some useful points brought up by other traders. Liquid options of tech stocks especially the higher priced ones with good volatility like AMZN, NVDA, NFLX, TSLA, SQ, ROKU, BYND, AMD, FB or even BA are all very suitable to be traded at the market open...especially high priced ones like AMZN contracts can move many $$s when delta jumps on a contract.

 

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Options Delta and Gamma are well explained in more detail in Nate Sheldenbergs Options Bible....the book is a bit epic so just read the part about Delta and Gamma beginning around p. 99 to better wrap your head around the concepts. A more fun way to that will also highlight the same ideas is just to compare underlying price with contract pricing for a few tech stocks when they were on the move...the key is to pick the contracts where the strike price was close to or below the stock price BEFORE the move began..then watch what happened to the contract price as the stock price moved closer, thru and zoomed beyond the strike price....that's where delta and gamma (gamma = acceleration of delta) explode.

 

http://terredegaia.free.fr/ppics/Trading/Mcgraw-Hill - Option Pricing And Volatility - Advanced Strategies And Trading Techniques - Sheldon Natenberg - (1994).pdf

 

Visualization of Delta ...the image is from the 2015 version of Nate Sheldenberg's book.

 

 

Edited by Marek Liyanage

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Took my first bigger options trade today on TSLA. Scalped a few weekly 500 calls. I trade them just like I do the stock...just watch the stock on  a separate montage. As you can see one contract w a price of $25 requires about $2,500 in buying power to purchase (100 share per lot). So a $2.5 move on the contract equals ~10% while the stock probably moved maybe 2% or so...

 

I follow Jay on Instagram...he's pretty good at posting educational stuff there and on youtube where he has a channel.

 

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