TWS Strategy Builder

Overview

Use the TWS Options Strategy Builder to quickly create option spreads from option chains by clicking the bid or ask price of selected options to add those contracts as legs in your spread strategy.


Access the Strategy Builder

  • From within Mosaic use the New Window drop-down and select Strategy Builder.
  • From within the Option Chain window, click Strategy Builder in the lower right corner.
  • From Classic TWS use the Trading Tools menu.
  • In the OptionTrader, Strategy Builder is included in the Order Management Panel.


Options Selector tool

Opening the Strategy Builder from the New Window button launches the Option Selector tool.

  • In-the-money contracts are highlighted.
  • Underlying and last prices are displayed along the top of the selector for easy reference.
  • The next four quarterly expiries are listed as tabs along the top of the selector. Click the "More" tab to view all available expirations.
  • The background of the strike price is shaded to indicate the number of standard deviations. Darker color indicates a standard deviation of 1.0 or less. The lighter the color, the greater the standard deviation.

Creating a Spread

Simply click the Bid price o or Ask price and that contract is instantly added to your strategy.

  • Within the Option Chain area, click the Bid Price or the Ask Price to add each leg in creating your combo.
  • Contracts used in the spread are highlighted in the Option Chain blue for a buy and red for a sell.
  • Mouse-over the bid and ask prices to display a tool tip for buy leg or sell leg.
  • Dropdown choices in each field of the Strategy Builder allow you to edit each leg. Use the red "X" to remove a leg.
  • The combo is recalculated in the Strategy Builder each time a leg is added or removed.
  • Recognized strategies are displayed in the title bar.
  • Once the strategy is defined, you can modify order parameters as needed in the Strategy Builder window, including order type, quantity, price, time in force, etc.
  • Click Submit to send the order. Or elect to Save the order with the Advanced button drop down to transmit at a later time.

The Advanced button in the strategy builder order line gives you additional choices:

  • Click Stock Leg to insert a stock leg for the current underlying. (For example: to create a buy-write (covered call). Click the bid price to sell a call, then from the advanced tab add a stock leg to create the buy write)
  • Make Delta Neutral will automatically add a hedging stock leg to the combo for a delta amount of the underlying. Use the system calculated delta or enter your own.
  • Note that the combo price and stock price are noted separately.
  • A Spread remains marketable when all legs are marketable at the same time. A missing bid or ask price in the spread implied price indicates one or more of the legs have become unmarketable.

View Margin Impact for Option Combinations

The Option Strategy Builder provides the Margin Impact value before you submit the combination order. The Margin Impact field displays in the Order Entry panel and updates when you modify any legs of the combination order. Note that the same value is displayed in the confirmation box if/when you submit the order.


Performance Profile for Complex Strategies

The Performance Profile helps demonstrate the key performance characteristics of an option or complex option strategy. You can access from the Button Panel – Preview Order/Check Margin Impact button.

  • An enhanced Quote Details window shows the Return/Risk Profit Probability and potential Max Return & Max Loss;
  • A Performance Graph that shows the P&L (or any of the Greeks). Use the pull down menu selections to display any of the Greeks or specify a date between now and expiration.
  • The Scenarios window displays the effects of a change in underlying price on the P&L, the Greeks, and the volatility of a position. Select % price move and expiration date for various scenarios.

Complex Multi-Leg Positions (v950)

Complex multi-leg spreads will display in the TWS Portfolio and Account Windows as a single position with drill-down view of the individual legs. So multi-leg spread positions will appear in a single line as a unique entry – allowing you to close out the entire complex multi-leg position with a right-click on the entry, then select Trade->Close Selected Position.

TWS shows the named strategy along with the net market value, average price, and realized/unrealized P&L for the position. Click the "+" next to the spread to show the value for each individual leg.

Use Global Configuration > Display >Ticker Row to choose whether to view or hide complex positions.

Some notes on complex position display:

  • If you trade an option that effectively closes out one leg of a complex position, the complex position is dissolved and the remaining leg(s) displays as single option position.
  • Several tools do not reflect this Complex Position display, including Rebalance, Option Rollover and Option Exercise. This display is not supported in the API.

Classic TWS OptionTrader– Strategy Builder

Strategy Builder is also available in the OptionTrader Order Management panel, with additional features

  • Click the bid/ask prices in the option chains to select the calls or puts for the Strategy Builder to create a spread. Use the dropdown choices to further define each leg.
  • Strategy graph is drawn to the right as you define each leg.
  • Click Add Stock to insert a stock leg for the current underlying.
  • Make Delta Neutral will automatically add a hedging stock leg to the combo for a delta amount of the underlying. Use the system calculated delta or specify your own.
  • Transmit the order directly from the Strategy Builder tab or choose to add to the Quote Panel. The implied spread price is displayed with a pink tick dot.
  • Add to Quote Panel button creates an implied price line in the Quote panel, with optional rows for each leg of the spread. Click the bid/ask price from the implied quote line to create the spread order. Credit or Debit spreads are color coded in the Bid/Ask row as well as left of the Transmit button.
  • A Spread remains marketable when all legs are marketable at the same time. A missing bid /ask price in the implied price indicates one or more of the legs have become unmarketable.

Spread Pricing

  • Note on pricing: If you buy a spread and you owe cash (debit spread), enter a positive limit price. If you buy a spread and you receive cash (a credit spread), you must enter a negative limit price. Conversely, if you sell a spread and receive cash, enter a positive limit price. If you sell a spread and owe cash, you must enter a negative limit price.
  • Check user guide for more information in "Combination Notes".

SmartRouting

For stocks and options traded at multiple exchanges or ECNs, IB recommends our intelligent best execution system – SmartRoutingSM which displays the NBBO from all available routing venues.

  • Set by default, this technology is designed to optimize both speed and total cost of execution by scanning competing market centers to automatically route all or parts of your orders to the best market(s) for the fastest fill at the most favorable price.
  • Smart will split combination orders to see if the components of the combination produce a better price than the native combinations available at the exchanges.

Order Types

Choose from the basic order types as well as: Relative + Market, Limit + Market, Trailing Relative + Market and Trailing Limit + Market. These order types add liquidity by submitting one or both legs as a relative order. Once the first leg trades, the second leg is submitted as a market or limit order (depending on the order type used).

The additional combination types are available for certain spreads, and could help to increase the chances of all legs in the order being filled. Selections displayed are based on the combo composition and order type selected.

Initially one or more legs are submitted as limit orders, but if the first leg fills or partially fills, the remaining legs are resubmitted as market orders.


Guaranteed and Non-Guaranteed Multi-Leg Orders

  • A Guaranteed multi-leg order is an order where executions are guaranteed to be delivered simultaneously for each leg and proportionately to the leg ratio. Available only for Smart-Routed U.S. option spreads and stock /option combination orders. Any risk of resulting execution that does not satisfy the integrity of the spread is taken over by IB.
  • Non-guaranteed spreads are exposed to the leg risk of partial execution, with the remainder of the combination order continuing to work until executed or canceled.
    • multi-leg orders are not guaranteed to be executed proportionately to the leg ratio although every effort is made to execute the order that way.
    • for a more aggressively routed order, check the Non-Guaranteed checkbox at order entry to take on the leg risk inherent for partially-filled combo orders yourself.

Non-US Products Smart-routed Combos – You can create non-guaranteed smart-routed combination orders for AUD, CAD, CHF, EUR, GBP HKD, and JPY products. Please note that these non-US combos are always non-guaranteed, which means that a single leg may fill without the entire combination being filled.

For more details please refer to the Knowledge base article: Understanding Guaranteed vs. Non-guaranteed Combination Orders