What is A Setup?
Setups are specific combinations of options contracts that align with a strategic objective. In brief, traders can use setups to take advantage of various option types, strikes, and/or duration. Since the setup often expresses the trader's view, they are often called "strategies" by other sites and educators. However, do not confuse this with the ranking strategies that The Brutus Options Ranker employs.
How Brutus Ranks Your Trades & Uses Your Assigned Setup
With Brutus you can define a strategy which establishes your desired options trading setup, market group, and criteria to balanced. Brutus uses a proprietary algorithm rooted in the field of Multi-Criteria Decision Making (MCDM) mathematics to scan the options market for opportunity which best meet your trading objectives. This MCDM technology is run on every available trading alternative for the day. What is a "trading alternative"? Well, it's simply all possible trades for your selected setup and market group (bundle of stocks) with some behind the scenes filtering to ensure "junk" contracts are removed.
More On The Setups Available in the Brutus Options Ranker
For example, a setup for a moderately bullish trader may include the purchase of a call option and the simultaneous sale of another call option. Both on the same underlying asset and with the same expiration date. However, the held call (buy) would have a lower strike price than that of the written call (sell). This setup is then called a bull call spread, and it's one of the many spreads available in the software:
To summarize, Brutus (at the time of beta) provides alternatives for the following setups. All available setup descriptions are available in the Knowledge Base Topic - Brutus Setups:
- At-the-money (ATM) Put Calendar Spreads
- Bear Call Spreads
- Bear Put Spreads
- Bull Call Spreads
- Out-the-Money (ATM) Call Calendar Spreads
- Out-the-Money (ATM) Put Calendar Spreads
- Short Puts
In the future we will surely make more setup types available. Of course, many to freemium users, while some setup types will only be available to premium accounts.
You can also access information about the setups available to you when you create a strategy. To view the available setups, click on the ‘Setups’ tab located in the near left-hand panel of the strategy builder page, which is where you edit your strategy tree.
Next, click the ‘Apply’ button on a single setup to assign it to your strategy. Once the setup is assigned, Brutus will know which alternatives to rank.
The many options trading setups is an extremely important concept for both the Brutus Options Ranker as well as all options trading. Therefore, we hope this article helps you deepen your understanding on how options setups are used in finding trades.