Systematic and Automated Option Trading (Collection)

chapter 6. Selection of Underlying Assets

6.1 Introduction

In this chapter we consider the problem of selecting underlying assets given that an option strategy and a combination creation algorithm are defined a priori. Using the term selection of underlying assets, we refer to the selection of option combinations corresponding to those underlyings. We assume the mechanism of combinations generation to be strictly predetermined. We also suppose that a sole option strategy is assigned to every underlying. This means that the most suitable option strategy and the best combination are chosen for each underlying asset (as discussed in Chapter 4, “Selection of Option Combinations,” and Chapter 5, “Selection of Option Strategies”). Under these conditions ...