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Setting up Strategy Builder

Now that you're familiar with option chains and AlgoTest's Strategy Builder, let's have a piece of deeper information regarding the setup process.

Gearing up your builder for optimal use involves selecting the underlying asset, customizing interface settings, and potentially connecting with multiple brokers.

Setting Up Option Chain View

AlgoTest's Strategy builder gives you settings to customize your option chain as per your desired needs.

Option Chain Settings

To change the settings click on the settings button as shown in the image below.

ATM Based on

The "ATM Based on" feature allows you to select if you want to view an ATM strike on the option chain based on Implied future or Spot. 

Show Feature

The Show feature allows you to enable or disable the view of some insights in the option chain like LTP, Greeks, Delta & IV, Near Strikes, and Illiquid Strike. Using the disable feature you can block the view of these values.

Selecting the Underlying Asset (e.g., NIFTY, BANK NIFTY)

The first step is choosing the underlying security you want to trade options on. This can be an index like the NIFTY or BANK NIFTY. Your selection will determine the available option chains displayed in the builder.

Here are some factors to consider when choosing your underlying asset:

Market Volatility

Options are typically more attractive for volatile assets, as they offer the potential for larger gains (and losses).

Liquidity

Opt for assets with high option trading volume to ensure you can easily enter and exit your positions.

Understanding

Choose an underlying asset you're comfortable with and whose price movements you can anticipate.

Once you've selected your underlying asset, the strategy builder will populate the interface with the corresponding option chain, displaying various call and put contracts with different strike prices and expiration dates.

Exploring Different Expiries

The expiration date is a crucial factor in options trading, significantly impacting the option contract's price. Options with longer expiration dates are generally more expensive than those expiring sooner. This is because they offer more time for the underlying asset's price to move in your favor.

The strategy builder typically allows you to choose from various expiration dates for your options contracts. Here's how expiration selection can influence your strategy:

Short-Term Expiries

Ideal for capturing quick price movements, but they carry higher risk due to time decay (Theta) if you are a buyer. Options sellers may prefer short-term expiries to gain theta decay.

Long-Term Expiries

Provide more time for the underlying asset's price to reach your target but are generally more expensive. Option buyers may prefer Long-Term Expiries as they are less affected by theta decay.

By adjusting the expiration date within the strategy builder, you can fine-tune your options strategy to match your risk tolerance and investment timeframe.

By utilizing the various settings and customization options strategy builders offer, you can create a personalized trading environment that caters to your specific goals and risk tolerance. In the next section, we'll search into the exciting world of building your own options strategies!