Spread Hacker in ThinkorSwim – How to Scan Options Trading Strategies

 

Is options trading reliable? People keeps asking me if trading options can be profitable, yet represent an additional source of income or even become the first source of income. The answer to all this doubts is YES. Today’s volatile financial markets offer plenty of opportunities each and every day, but only experienced traders are able to take advantage of them systematically.

 

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What is challenging in option trading is to pick the right options with the right timing. While it takes a good deal of work to understand which ones can be the most profitable investments, there is also technology that comes to give traders help in doing so.

In this article I want to introduce the Spread Hacker tool in the ThinkorSwim Trading Platform by TD Ameritrade. It is an invaluable tool that can help traders in scanning complex options strategies.

 

The Spread Hacker

The Spread Hacker is a scanning tool specifically thought to look for option spreads by selecting the correct search criteria. You can choose to scan every single option in the universe or narrow your search by selecting specific public (S&P, NASDAQ, RUSSEL, etc) or personal stock lists. Traders can use this tool to literally scan through over 100.000 options and ThinkorSwim does all this scan activity in real time for you.

In the ThinkorSwim Desktop, go straight to the “Scan” tab on the top of the platform. Clicking on it you find three different sections: Stock Hacker, Spread Hacker and Spread Book.

 

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Select the Spread Hacker section and choose a specific list to scan. You can search through the following spreads: Vertical, Butterfly, Iron Condor, Calendar, Diagonal and Double Diagonal.

General Rule: anytime you start a search in this tool you have to know exactly what you are looking for.

The criteria to select are the ones that suit your investing strategy the best. Here you can set several scan criteria for each strategy mentioned above by simply clicking on “Add Fundamental Filter” and set as many new scan criteria as you would like to utilize.

 

Scan Criteria for Options Strategies


You can choose amongst the following scan criteria:

  • Underlying Price. You are allowed to choose the range of price you are interested in. One may feel more comfortable trading on underlying (stocks) with min price $10 and max price $20 or min price $50 and max price $100. You can choose to enlarge or narrower the range.

  • Days to Exp. Here you can set the numbers of days to expiration. If you were interested in income strategies in which you sell options, you may decide to sell options within 20 and 35 days to expiration to benefit the most from the effect of the time decay. If you are interested in strategies in which you buy options (such as Straddles or Strangles), you would like to buy options with at least 120 or 180 days to expiration to minimize, in this case, the negative effect of time decay.

  • Delta. It is the Greek that represents the direction of the trade. This value is included within -1 and +1. If you are bullish, select a slightly positive Delta; if you are bearish, select a slightly negative Delta.

  • Mark. It is the middle price between the asking price and the bidding price. Not necessarily you need to set this criterion for your search.

  • Prob of Profit. It is the probability of profit you wish for your trade. You may set a probability between 60% and 75% for your trade.

  • Max Profit. It is the maximum profit you wish for your trade.

  • PL/Margin. It represents the margin you must have in your trading account if you want to sell options. For example, if you sold a Vertical Spread with spread 1 (difference between strike prices) and your credit is $30, your net debit will be $70 (difference between the 2 strike prices – the net credit received). In such a case, you have to consider that the margin required by the broker will be $100 and you cannot utilize such amount of money until the expiration of the trade. You can set these search criteria in order to meet your personal money management needs.

  • Front Vol. It represents the front month volatility.

  • Back Vol. It represents the back month volatility.

  • Vol Diff. It represents the difference between the front month volatility and the back month volatility.

 

How to Scan Volatility Skews


About volatility, you may be interested in setting these criteria when you want to trade strategies with different expiration date (e.g. Horizontal Spreads such as Calendar or Diagonal Spreads) in which you desire to have high implied volatility (IV) for the options sold and low implied volatility (IV) for the options purchased in order to maximize the potential profit of the trade.

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Top 10 Factors Impacting on a Straddle

 

You may look for options with volatility skews like for example min “front vol” at 30% and max “back vol” at 30%. In this way, you will be looking for options to sell (expiration date about 30 days) with minimum IV 30% (you want to sell high IV and get a higher credit) and options to buy (expiration date not less than 90 – 120 days) with maximum IV 30% (you want to buy low IV and pay a lower debit).

To better understand why you want to sell high IV and buy low IV, you need to know how the price of options is made up. For further information visit: 6 Elements Impacting on the Options Premium – Theoretical Price and Black-Scholes Model and Factors Impacting on Volatility – How to Trade Implied Volatility on Options Strategies.

 

How to Analyze a Trade in the Search Results


After setting all the query criteria, you just need to push the “Scan” or “Search” button. In a few seconds, it will appear a list with all the option strategies available for those criteria. If you are interested in a particular trade, you just have to push on the blue dot on the left side of the trade and select “Create Duplicate Order” or, if you want to analyze it first, “Analyze Duplicate Trade”. In this way, you will be able to place your order or to analyze it first to check if it meets your trading rules.

 

Spread Hacker Scan in ThinkorSwim

 

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Your search criteria can be changed at any time, but remember that after having changed them you need to click again on the “Scan” or “Search” button to have a new search done.

You can even save one of the trades got from a query by clicking on the small padlock on the right side of the trade you are interested in under the column “Pin”.

When the padlock is locked you can change your search criteria without losing that selected trade.

 

Flavian Barrett is a self-made stock options trader who is dedicated full time to options trading. He has spent several years mastering the art and science of advanced options strategies and concepts such as options pricing and volatility, greeks and time decay.

In his website www.FromZeroToOptions.com he shares tips, techniques, tutorials and insightful articles and resources options related.

If you want to get instructions on how to place the most rewarding options strategies from scratch! .. go to Options Strategies – The eBooks.

 

 

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3 comments

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