Can I Use Machine Learning When Trading Options?

Options traders frequently ask this question given the potential of machine learning. So the answer is yes, you can use machine learning to identify when to trade options.

Machine Learning in Trading Options

See IKnowFirst which published some results frequently, a finalist in UBS 2017 Future of Finance and won the 2019 Best WealthTech International Financial Technology Start-up at Geneva WealthTech Forum. In fact, IKnowFirst also issued a guide on using quant automated trading and challenge you to beat their previous performance of 48% annual return (I will probably try when I got more time).

Machine learning is a subfield of AI, and it produces systems that can provide correlation by deep abstractions to learn from experiences. When people talk about machine learning, they are generally focusing on trade predictions. People and companies all over the world are trying to learn, but no one would claim to master it because the market will become efficient. 

Principles of Machine Learning

The major principle of machine learning is in the field of data sciences. In this field, it can be used to find patterns and correlations in very large data sets. On these basic principles, many machine learning algorithms are based.

Another interesting field is the Multi-Criteria Decision Analysis (MDCA) software. It allows algorithms to make decisions on subjective matters. Principles from machine learning methods and data sciences are combined with MSDN to yield more impressive results. So, these methods will not predict the up or down movement of the stock, but these methods make decisions based on your particular option. 

How to Use Machine Learning To Identify Profitable Puts?

Machine learning can help you to predict the best pricing options with the help of different algorithms so that you make your decisions by selecting the most profitable options. 

Can I Do This Myself Without The Help of a Company?

Now, you are familiar with the benefits of machine learning, but the question is, can you do it by yourself? The answer is probably not. Trading firms have spent years to find success in machine learning methods. They have worked very hard to find a perfect data source, talent, infrastructure, and risk management. Single personnel can’t make use of machine learning methods to get the desired results accurately. Even a group of individuals can’t do this without dedicated resources. The trading market is very competitive and you wouldn’t get too much help on where to start. 

What is Machine Learning all about?

Machine learning is all about:

  • Programs to make predictions on past trained data.
  • It is linked to computational statistics, which uses computers to make predictions.
  • It makes difficult tasks easy, such as recognizing something. 
  • Did you ever notice when you upload something on Facebook, it shows you the option to tag people by recognizing their faces; it is because of the algorithm of machine learning? 
  • Machine learning is making a huge impact in many industries like marketing, financial services, delivery, and health care. 
  • Options traders are using machine learning to deal with complex mathematical and statistical computations. 
  • Machine learning can help to predict the best technical indicator from hundreds of indicators. 
  • Machine learning chooses between the different features of indicators and selects the most efficient ones for predictions. 

So it can be used definitely, but how you can use machine learning to identify when to trade options. Will update more when learnt more about it.

Sky Hoon. Read Full Bio
Website Owner, Twitter-er
He has been trading since 2008. He started this blog to share the journey about option trading. He dabbled in stocks, bitcoin, ethereum (in Celsius Network), ETF (lazy Dollar Cost Averaging) and also built websites for fun. He used this as a platform to share my experiences and mistakes in trading, especially options which I just picked up.