Algorithmically Complete

An Algorithmically Complete optimization algorithm for a problem is a search algorithm that guarantees, given sufficient time, to find the Optimal Solution to the problem if one exists, or else to exhaust the search without finding any solutions, thereby proving that no solution exists. The Tradelegs Derivatives Strategist™ optimization algorithms are Algorithmically Complete. For efficiency, the user can configure them to terminate the search as soon they find a solution that has been proven to be within a small percentage of the Optimal Solution (e.g. 0.5%).

Constraint

A limit or condition that the client specifies must be met in all solutions generated by the algorithm.

Custom Strategy

This is a strategy consisting of equity and/or options legs (contract positions), where the combination of legs and quantity of options in each leg may be different from those found in conventional Standard Strategies. The best Custom Strategy is generally better than, and always at least as good as the best Standard Strategy at addressing the client’s requirements because there are no restrictions on the choice and quantities of options in each leg. Tradelegs Derivatives Strategist™ enables the user to find the Custom Strategies that maximize their Expected Profit/Loss while meeting their Constraints.

Expected Returns, Expected Profit, Expected Profit/Loss, Average Expected Profit/Loss

Expected Returns are the Expected Values obtained by weighting P/L values by the probability of their occurrence, as determined by the client. Using Tradelegs Derivatives Strategist™, clients communicate the probabilities of different underlier prices occurring and other pricing predictions, to determine their strategy’s expected profit/loss, or to find a strategy that maximizes Expected Returns.

Expected Value

In probability theory, the Expected Value is the average of all possible values, weighted by the probability of their occurrence.

Optimal Solution

This is a solution that has been proven to be the best, or at least as good as any other solution, as measured by the value of a solution quality metric. The quality metric used by Tradelegs Derivatives Strategist™ is Expected Profit/Loss.

Optimization Algorithm

An algorithm that is designed to search for the Optimal Solution.

Optimize, Scientifically Optimize

At Tradelegs, this is to use an Algorithmically Complete Optimization Algorithm to solve a client problem.

Standard Strategy

A strategy described within the literature and known to investors, such as Long Call/Put, Covered Call, Ratio Spread, Straddle, Iron Condor, etc. For further examples, see The Bible of Options Strategies: The Definitive Guide for Practical Trading Strategies by Guy Cohen, Pearson Education, 2005