Hi,
I am trying to use the Technical Indicator for Momentum stratagy for BTCUSD pair form Delta Exchange India platform, I am using the standard code that we learned in course which generates a signal for entry of long or short possition.
What I am confuse about is that how to apply this signals in option market and where to set Target and Stoploss for the same?
Hello Piyush,
You have asked an interesting question. The point here is that with stocks it is straightforward, if the indicator gives you a buy signal, you go long on the stock, and vice versa.
With options however, it is not as simple since you have to assess the impact of greeks on your options. For example, how much does the option price change with change in the underlying asset.
On a higher level, you can try to set a take profit or stop loss level based on the movement in the underlying asset, or as a percentage of premium. If however, you want to incorporate properties of options, then you can look at the time to expiry, change in volatility, or change in price as well.
If you want to keep it simple, you can start with setting a target to exit when BTCUSD increases by 10% or when the call option’s premium increases by 70%. On the other hand, set a stop-loss if BTCUSD falls by 3% or the option premium drops by 40%. You can then try to optimise the take profit or stop loss based on the options greeks as well.
Hope this helps.