Trading Mate with options – March 2021

Trading Mate is a portfolio that dynamically adjusts the risk exposure based on a mix of quantitative trading rules, risk management and money management. This portfolio tries to minimise the number of transactions by avoiding intraday trading and increasing the portfolio exposure only on days when it has higher confidence.

Access the updated portfolio here

The system can be used to trade any instrument that gives exposure to a given market. So, for example, when looking at the system on S&P 500, the actual trading can be performed by using futures, CFDs, ETFs (i.e. SPY, etc), options and more.

This article tries to offer an overview of how Trading Mate uses options on SPY to follow the signals and how the suggested exposure can be translated to delta exposure for a given strategy.

Let’s say that our maximum exposure on SPY is 100 units. At current levels, this means that for every 1% move in the underlying we would have a P&L of about $380. One option controls 100 units so if we buy an options with delta 0.5 this will have approximately a P&L of $190 for every 1% move. We will ignore higher order effects here.

The chart below shows the last month’s of trading in SPY together with the exposure that Trading Mate had at the market open of each bar.

This exposures have generated the following P&L profile against the market.

How should we use this information when trading options? There are many ways, from a simple purchase of one single option (put or call depending on the direction of the exposure) with a delta equal to Trading Mate’s exposure, to more complex strategies.

Access the Option Strategist section here

The images below summarise our activity on SPY options (expiry: April 16) during the month of March with a strategy that has changed its delta over time based on the exposure in Trading Mate. Please note, the last few days of rising markets haven’t required any major adjustment and the position has been kept unchanged even if it would have been more convenient to increase further our delta in the morning of March 25, as suggested by Trading Mate. But the strategy was already providing enough exposure.

The date each plot refers to can be read on the legend. Also, greeks (in particular delta) can be read below each plot and we can see how the delta exposure has been managed (approximately) in line with Trading Mate’s exposures.

This is just one of countless ways to use options with Trading Mate. We will add more examples in future.