Definition of terms in our Algo Trading platform

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Definition of terms in our Algo Trading platform

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In this post, we’ll go over the definition of terms in our Algo Trading platform, AlgoTest.

Some of these examples are highlighted in red.
Some of the terms used.

Underlying from:

The underlying instrument could either be the Cash instrument (eg. NIFTY index spot) or the Future instrument (eg. NIFTY current month future). This affects strike selection. Lets consider the case when NIFTY Index is at 17010 and NIFTY Future is trading at 17040. The ATM strike in both these cases would be as follows:

  • Selecting “Cash” means ATM strike = 17000
  • Selecting “Future” means ATM strike = 17050

Video: https://bit.ly/3wpkFDB

Here are some more definition of terms used in our Algo Trading platform.

Leg-wise settings

Here are some leg-wise definition of terms used in our algo trading platform.

Square off:

  • Partial: If a Stop Loss or Target Profit hits any leg, the system will square off only that leg.
  • Complete: The system will square off all legs if Stop Loss or Target Profit hits any leg.

Video: https://bit.ly/3dQBJMz

Trail SL to Break-even Price:

  • All Legs: If a Stop Loss hits any leg, the system will trail the Stop loss of all other legs in the strategy to their respective entry/cost prices.
  • SL Legs: If a Stop Loss hits any leg, the system will only trail the SL of those legs whose SL is specified. The SL trails to their respective entry price.

Video: https://bit.ly/3ccotS2

Select Strike Criteria:

  • Strike Type: This criteria helps you select a strike based on its Moneyness. You can select between At the money (Strike closest to underlying), Out of the money (strikes away from the Underlying and have only time value and not intrinsic value) or In the money Strikes (Strikes have both intrinsic and time value)
  • Premium Range: This feature gives the user the ability to select strikes who’s premium fall between an upper & lower premium range. If there are two or more strikes that fall between the premium range, then the one with a higher premium will be selected if the action is to Sell an option & the one with the lower premium will be selected if the action is to Buy an option. Eg. If the user selects premium Lower range = 100 & Upper Range = 200, then all the strikes who’s premium fall within the range of Rs 100 and Rs 200 for a particular backtest period will be shortlisted. Based on the Trade whether to Buy or Sell, the Strikes will be selected from this shortlisted list.
  • Closest Premium: This criteria selects a strike price whose premium is closest to the one defined by the user. The strike selected can have premium which is either greater, lesser or exactly equal to the one input by the user.
  • Straddle Width: Straddle Width is calculated by summing the ATM CE & PE premiums. The user is given the option to select a strike which is a sum/difference of the ATM strike and a multiple of the Straddle Width. For eg. if the current Bank Nifty spot = 35000 and the Straddle width (ATM CE + PE) = Rs 500, then the CE strike for [ATM strike + (2 X ATM Straddle price)] = 36000 CE Strike.

Simple Momentum:

Takes entry into the trade after the price moves a certain amount, in points or percentage, after the entry conditions.

Video: https://bit.ly/3R2jG4m

Trail SL

With trailing SL, you can move your actual stop loss, whenever the price moves in your favor. Every time the instrument moves in your favor by X amount, the SL is moved by Y amount in the same direction. Amount can be in terms of points or percentage.

Video: https://bit.ly/3ccsYMe

Re-entry:

  • RE ASAP (Immediate Re-entry)
    • Re-enter immediately in the new ATM strike at market price. For example, the user selected an ATM strike and its Stop Loss got triggered. The system will immediately re-enter the same position but with the new ATM strikes.
  • RE ASAP ↩ (Immediate Reverse Re-entry)
    • Re-enter immediately in the new ATM strike at market price and reverse the position. For example, the user entered an ATM call at Rs 100 with SL at 40% (SL = Rs 140). If this Stop Loss triggers, the system will immediately re-enter with the new ATM strikes, but with a long position. SL will remain at 40%.
  • RE COST (At Cost Re-entry)
    • Re-enter the original leg at previous entry price. For example, the user sold an ATM call with SL 20 % at Rs 100 (SL = Rs 120). Now if the Stop Loss triggers, the system will wait for the price of this call to come back to Rs 100 (Entry Price) before it re-enters the same option. SL will remain at 20% upon re-entry.
  • RE COST ↩ (At Cost Reverse Re-entry)
    • Re-enter the original leg at the initial entry price but reverse the position. For example, if the user sold a call with SL 20% at Rs 100 (SL = Rs 120) and the Stop Loss HIT, the system will wait for the price of the Call to come back to Rs 100 (Entry Price) before it re-enters the same option. But, this time the system will take a reverse position, i.e. buy the call option instead. SL will remain at 20% upon re-entry.
  • RE MOMENTUM (Re-entry with Momentum)
    • If the user has selected “Simple Momentum”, then the system will wait for the momentum condition to hold true before it re-enters.
    • Eg. Suppose the user sets the “Simple Momentum” to Percentage Up 10%, Buy ATM call with entry time 9:30am and SL 5%. Assuming the price of the call at 9:30am is Rs 100, the system will wait till the price of the option reaches Rs 110 to buy it. Once the Stop Loss triggers, the system will choose the new ATM call and apply the “Simple Momentum” with Percentage up 10% and SL 5% to it. Say the price of the new ATM Call was Rs 50 when the SL triggered, the system will wait for the price of this option to go up to Rs 55 before it enters again. The SL will remain at 5%.
    • If the user does not select “Simple Momentum”, then this behaves exactly like RE ASAP.
  • RE MOMENTUM ↩ (Reverse Reentry with Momentum)
    • If the user has selected “Simple Momentum”, then the system will wait for the momentum condition to hold true before it re-enters. But, this time it will re-enter the reverse position.
    • Eg. Suppose the user sets the “Simple Momentum” to Percentage Up 10%, Buy ATM call, entry time 9:30am and SL 5%. Assuming the price of the call at 9:30am is Rs 100, the system will wait till the price of the option reaches Rs 110 to buy it. Once the SL triggers, the system will choose the new ATM call and apply the “Simple Momentum” with Percentage up 10% and SL 5% to this. Say the price of the new ATM Call was Rs 50 when the SL triggered, the system will wait for the price to go up to Rs 55 before it enters again. But, this time the system will sell the call instead. The SL will remain at 5%.
    • If the user does not select “Simple Momentum”, then this behaves exactly like RE ASAP ↩

Overall Settings

Here are some strategy-level definition of terms used in our algo trading platform.

Overall Trail SL:

This is a strategy level feature. With Overall trail SL, you can move your Overall stop loss, whenever the MTM/Profit moves in your favor. So every time the strategy MTM moves in your favor by X amount, we will move the stop loss by Y amount in the same direction. Amount can be in terms of Points/Rupees or percentage of total premium received or given.

Overall Re-entry:

Overall Re-entry is triggered only in the case when the Overall strategy Stop Loss gets hit.

  • RE ASAP (Immediate Re-entry)
    • Re-enter immediately in the strategy with new ATM strikes at market price. For example, assume the overall strategy SL gets triggered. The system will immediately re-enter the same positions with the new ATM strikes.
  • RE ASAP ↩ (Immediate Reverse Re-entry)
    • Re-enter immediately in the strategy with new ATM strike at market price and reverse the position. For example, the user enters a short ATM Straddle (Call & Put) with an Overall Stop Loss 40% at a combined premium of Rs 100. So Overall SL in this case is Rs 140. Now when the Stop Loss triggers, the system we will re-enter the Straddle (Call and Put) with the new ATM Strikes. But, this time it will take a long position, Overall Stop Loss will remain the same at 40%.
  • RE MOMENTUM (Re-entry with Momentum)
    • If the user has selected “Simple Momentum”, then the system will wait for the momentum condition to hold true before it re-enters.
    • Eg. Suppose the user sets the “Simple Momentum” to Percentage Up 10% for ATM Buy Call and Put, with entry time 9:30am and Overall Stop Loss at 5%. Once the Overall Stop Loss is HIT, the system will choose the new ATM call and Put and apply the “Simple Momentum” with Percentage up 10% and Overall Stop Loss of 5% to this. Say the price of each of the new ATM Call & Put is Rs 50 when the Overall Stop Loss triggered, the system will wait for the price of either of these options to go up to Rs 55 before it enters again and puts the Overall Stop Loss at 5% as before.
    • If the user does not select “Simple Momentum” this behaves exactly like RE ASAP.
  • RE MOMENTUM ↩ (Reverse Reentry with Momentum)
    • If the user has selected “Simple Momentum”, then the system will wait for the momentum condition to hold true before it re-enters, but this time it will re-enter the reverse position.
    • Eg. Suppose the user sets the “Simple Momentum” to Percentage Up 10% for ATM Buy call and Put, with entry time 9:30am and Overall Stop Loss at 5%. Once the Overall Stop Loss is HIT, the system will choose the new ATM call and Put and apply the “Simple Momentum” with Percentage up 10% and Overall Stop Loss of 5% to this. Say the price of each of the new ATM Call & Put is Rs 50 when the Overall Stop Loss triggered, the system will wait for the price of either of these options to go up to Rs 55 before it enters again. But this time it will sell the options instead. The Overall Stop Loss will again be put at 5%.
    • If the user does not select “Simple Momentum” then this behaves exactly like RE ASAP ↩

2 thoughts on “Definition of terms in our Algo Trading platform”

  1. if mtm sl is -3500 but over tail sl is +2000 profit sl comes to 0 and again +2000 profit mean +4000 comes sl comes to +2000 how to check

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