Automated Options Trading in ThinkorSwim

Education

Introduction

In the world of trading, options trading has gained popularity due to its potential for profit alongside significant risk management strategies. ThinkorSwim (TOS), a trading platform from TD Ameritrade, provides a robust environment to engage in this financial activity. In this article, we will explore how to set up automated options trading using ThinkorSwim, allowing you to trade options as you would stocks, complete with price action analysis through charts.

Sending an Options Chain to a Chart

One of the unique features within ThinkorSwim is its ability to send options chains to charts. This allows you to view price action for option contracts on candlestick charts like any other underlying stock. To achieve this:

  1. Link the Chart: In the chart area where you typically input the stock ticker, locate a colored link (for example, a blue '3') beside it. Click on this to unlock the dropdown and set it to 'blue'.

  2. Access the Trade Tab: Go to the 'Trade' tab to view your desired options chain. For instance, let’s say we are interested in the SPY 508 call expiring on Monday.

  3. Send the Option to the Chart: Right-click on the option you want to send, hover over 'Send', and select the corresponding color (blue in this case). Once returned to the chart, you will see the option's price action displayed.

Now, you can visualize the movement of options side by side with strategies like moving average crossovers.

Setting Up an Automated Trading Strategy

Now let's discuss how to automate your trading strategy in ThinkorSwim:

  1. Open the Active Trader Window: Click on the grid icon from your flexible chart, and enable the sidebar to access the Active Trader window. Ensure that the 'Auto Send' feature is turned off.

  2. Creating a Buy Order: Once you have your option on the chart, right-click to buy. With 'Auto Send' off, a confirmation window will pop up. Click 'Edit' to enter the order rules modal.

  3. Configuring Order Rules:

    • Set the quantity for how many contracts you want to buy.
    • Select 'Market' or 'Limit' for your order type. For instance, a limit order allows you to specify the maximum price you're willing to pay.
    • Set 'Time in Force' to GTC (Good Till Canceled).

  4. Add Conditions for Execution: Click on 'Symbol', select 'Study', and edit to create a condition. For example, you might want to trigger the order when the 20 SMA crosses above the 50 SMA.

  5. Finalizing Your Order: Include additional criteria for cancellation if needed—like canceling if the order isn't filled by a set time. After reviewing your order description to confirm the conditions, hit 'Confirm and Send'.

Setting Up a Sell Order

Once your buy order is executed, you may want to automate your sell strategy as well:

  1. Modify the sell order similarly, but this time select ‘Market’ and set your condition for selling when the 20 SMA crosses below the 50 SMA.

  2. Like the buy order, any criteria for cancellation or limitations should be adjusted according to your trading plan.

Automating these orders using the ThinkorSwim platform helps to save you screen time, allowing you to balance trading with other life responsibilities.

Conclusion

By employing the features of ThinkorSwim, you can effectively automate your options trading strategies. This process enables you to engage in the market without constantly monitoring your charts, ultimately helping manage your emotions and enhancing your trading experience.

Keywords

Automated trading, options trading, ThinkorSwim, options chain, candlestick charts, moving average crossover, buy order, sell order, market price, limit price, Time in Force, condition.

FAQ

Q: How can I send an options chain to a chart in ThinkorSwim?
A: Click on the blue link (for example, '3') next to the ticker, access your options chain from the 'Trade' tab, right-click on the desired option, hover over 'Send', and select the corresponding color to display the price action in the chart.

Q: What is the difference between a market order and a limit order?
A: A market order buys or sells an option at the current market price, while a limit order specifies the maximum price you are willing to pay or the minimum price you want to receive.

Q: How can I automate my buy and sell orders?
A: Utilize the Active Trader window to set your conditions and rules for buying and selling based on indicators such as moving averages, confirming that your criteria are met before executing trades.

Q: Can I cancel orders if they are not executed?
A: Yes, you can set a 'Time in Force' option such as ‘Good Till Canceled’ or apply conditions to automatically cancel an order if it remains open past a specific time.