How to increase the chances of multi-leg strategies being traded

A user contacted us a few days ago and asked how to increase the chances of executing his trades. He was trading broken wings butterflies, and some of his trades were waiting in the market and not getting hit.

Since the scanner looks for patterns and anomalies, this could happen with trades found on the scanner at a higher probability when compared to finding trades 'organically.'  

This article will give you some tips you can use to increase the chances of multi-legs strategies being executed.

Let's start with an overview and dive into details later:

  1. Control the bid-ask level 
  2. Make sure the stock is liquid. 
  3. Have more room for the price to change 
  4. Don't use deep ITM options.
  5. Adjust prices: When you are about to enter the position, check the current market price in the broker vs. Samurai. See if you want to wait, or adjust strikes.

Control the bid-ask level 

You can control what price we use when we scan. For example, we can use Mid-price (average of bid and ask), conservative price (bid for selling options, ask for buying options), or anything in between. Check this article for more

Make sure the stock and options are liquid.

Stocks that have high liquidity are easier to trade. To ensure the stock is liquid, you can use total options volume and set it above 10K or 5K. See this article for our liquidity measures.

Have more 'room' for the price to change

This is easier to imagine when you look at the strategy P&L graph. If, for example, we take a riskless up butterfly. It will be easier to trade a 'shape' with more 'space' before the strategy loses. This is because you have more room to adjust prices against you and ensure execution. 

For example - it will be easier to execute this shape:

Than this shape:

Take it into consideration when you are looking for trades. The latter is less flexible and will be harder to execute.

Don't use deep ITM options.

Options are leveraged Vehicles. This means they move very rapidly. Deep ITM options have less liquidity and a higher bid-ask spread, making it harder to execute those trades for a reasonable price. You usually will not see them in the scan, but if you don't limit the moneyness filter or the bid-ask spread filter and ask for high probability and high-profit ratio trade - you will see some trades that use them. It is tough to trade them, so we recommend using a -5% and +5% moneyness filter (or close to it) and a relative tight bid-ask spread (about 50 cents)

* Deep OTM options are also hard to execute for similar reasons. 

Adjust prices

When placing the trade on your broker platform, compare the broker prices to what you see on Samurai. You can then decide if you want to:

  1. Place the trade as is - if you can get the price you see at Samurai or better.
  2. Improve prices - If you think you can get a better price than what you see in your broker - you can place a trade and wait to be executed. You can adjust the trade towards the end of the trading session or find a different trade on another day - you will never run out of trade ideas.
  3. Adjust strikes - If you see the price very different, you can adjust the strikes to get a better price and execution. 

These are some tips that can help you increase your chances of executing trades on the broker. We suggest having patience. As the market moves in cycles and with a scanner, you will always find trade ideas.

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