UpTrade is the world’s first robo-advisory for short options trading.
We are pleased to announce that we have launched our short-option-strategy backtester. This is just the first milestone in a product plan that includes live trading on top of brokerage APIs, connectivity to live investment advisors, fully-automated, short-option trading and seamless connectivity to DeFi applications.
Why Short Puts?
If you are familiar with options trading, you should first know that buying long options, a strategy that relies on market-direction sentiment, is often a risky proposition. Buying long puts, or long calls, is a leveraged investment. And leverage usually means risk. If your sentiment proves to be right, you can make a nice capital gain. But the odds of success are not in your favor.
Now consider the other side of the trade – being the option seller. That has better odds of success – house odds, some would say. We recommend starting by selling short puts.
As a first-time option trader, it may seem like there are an overwhelming number of alternatives to digest. How far out of the money should an option be sold? What expiration date is best? What do I do if I am assigned shares?
To help you weed through these issues, UpTrade automates the process of setting up and managing strategies. This cuts through the grumbly of putting on the trade from a complex trade ticket. UpTrade sets up a good starting position with a reasonable strike price (with 70% odds in your favor) and a realistic time until expiration (usually close to 45 days).
But before you dive in, you should know that not every option trade turns into gold. You should accept the notion that if the strike price is ever breached, you may be assigned 100 shares of the underlying stock for each contract you sell. Being assigned means you will automatically purchase shares at the put option’s strike price. This event will eat up buying power, or generate a margin call, if you don’t have enough money in your account. So beware.
Here is the good part in that equation: If you are assigned shares, you get to keep the premium you collected when you sold the option short. This effectively lowers the cost basis of the stock below the strike price.
One last trading tip: You should not wait until the short put option expires. Instead, consider closing out your position as soon as you reach 50% of the maximum profit possible on the trade. By doing this you take risk off the table and realize a sure profit.
“You never lose money by making a profit.”
-anonymous wise trader
Prove it
Our backtester proves what we mean by selling short options. Feel free to try it out. We have option price data going back two years for 600 of the most-traded underlying stocks. You can trade short puts, covered calls or short strangles. Pick a symbol, and a start date, and our robo-advisor sets up the suggested trade.
Push the Trade button to start the backtester and the resume button to resume if there is a pause in the action.
Remember to check the box to step through the strategy one day at a time, otherwise by default, you will jump ahead to the next significant event. UpTrade will post strategy-management prompts for your consideration along the way.
A complete guide to our backtester is here.
Make it Easy to be Smart
UpTrade brings smart trading to the masses. By learning the basics of short option trading, based on historic data, you can practice entry and exit points, along with various rolling strategies, before you risk real money.
Trade on, trade up.