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Basic Strategy Creation

Let's dive into the exciting world of building your first options strategy on AlgoTest.

Steps invovled in making a strategy​

Selecting the Underlying Asset​

Recall from the previous section, you'll first need to choose the index you want to trade option on. This selection populates the strategy builder with the relevant option chain.

Picking Your Options Type​

Decide whether you want to buy call options (bullish outlook) or put options (bearish outlook) based on your market expectations.

Strike Price Selection​

Choose the strike price at which you want the right to buy or sell the underlying asset. This selection significantly impacts the cost and potential returns of your strategy.

Expiry Date Selection​

Select the expiration date for your options contracts, considering the factors discussed in section 2.2.2 (short-term for quick movements, long-term for more time).

Quantity Input​

Specify the number of option contracts you want to include in your strategy. This determines your overall exposure and potential profit/loss.

By following these steps and utilizing the visual representation of the option chain provided by the builder, you can easily construct basic options strategies, such as buying a single call option (bullish) or put option (bearish).

How to create an Iron Fly in the Strategy Builder​

Follow the steps below to create your first strategy:Β 

Step 1​

Go to the AlgotΠ΅st website, sign up for a free account, and log in to your account.

Step 2​

Now click on "Strategy Builder" as shown in the image below

Step 3​

You will get an interface as shown in the image below.

Step 4​

Now add the legs from the option chain according to the strategy that you want to build. Assume if we want to build an iron fly we will sell ATM CE and ATM PE and buy OTM CE and OTM PE from the option chain as shown in the image below

Step 5​

You can analyze your strategy using the different tools provided by AlgoTest.

Analysis Section​

In the Analysis section, Strategy Builder provides you tools like Payoff graph, Maximum Profit, Maximum Loss, Risk Reward, Break Even Point, etc to analyze your strategy. A payoff graph is a very useful tool that helps you to determine how your position is going to end till expiry concerning the underlying move.

Greeks Section​

In the Greeks section, Strategy Builder provides you with information about Option Greeks like Delta, Theta, Gamma, IV, Vega, etc. for your positions as shown in the image below.

Monte Carlo Analysis Section​

In the Monte Carlo Analysis Section:- Your PnL will depend highly on the underlying index's path. Monte Carlo Analysis is an advanced method to see how your strategy will perform on average across 10000 different price paths that the underlying could take until expiry. You can access this feature by clicking on "Monte Carlo Analysis" as shown in the image below.