Equity Option Strategy Discovery and Optimization Using a Memetic Algorithm
Artificial Life and Computational Intelligence, ACALCI
Options in finance are becoming an increasingly popular investment instrument. Good returns, however, do depend on finding the right strategy for trading and risk management. In this paper we describe a memetic algorithm designed to discover and optimize multi-leg option strategies for the S&P500 index. Strategies comprising from one up to six option legs are examined. The fitness function is specifically designed to maximize profitability while seeking a certain trade success percentage and equity drawdown limit. Using historical option data from 2005 to 2016, our memetic algorithm discovered a four-leg option strategy that offers optimum performance.
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Tymerski, R., Greenwood, G., & Sills, D. (2017, January). Equity Option Strategy Discovery and Optimization Using a Memetic Algorithm. In Australasian Conference on Artificial Life and Computational Intelligence (pp. 25-38). Springer, Cham.