Capital & Risk Controls
Alta5 provides several safety features ("risk controls") to help protect you from accidental mistakes, excess capital draw and/or bugs in your strategy.
What is "draw"?
Draw is the total amount of capital at risk for an opportunity. Alta5 sums the cost to open the opportunity (Cost), commission and margin/maintenance requirements to determine the total capital at risk.
Draw = Cost + Commission + Maintenance
|Cost:||$5,000 = 100 × 50|
|Draw:||$5,006 = 5,000 + 6 + 0|
The cost to open a short opportunity that collects premium is a negative value.
|Cost:||-$500 (premium) = (-2 × 10 × 100 = -2,000) + (1.50 × 10 × 100 = 1,500)|
|Commission:||$21 = 6 + (10 × .75 = 7.50) + (10 × .75 = 7.50)|
|Maintenance:||$1,000 = (100 - 99 = $1/share max loss) × (10 contracts × 100 shares = 1,000)|
|Draw:||$521 = -500 + 21 + 1,000|
The commissions above ($6 per trade and $.75 per option contract) are only example values. The actual commission fees you pay are determined by your TD Ameritrade account agreement.
Open Opportunity Limit
Restricts the number of opportunities a bot can have open concurrently. The limit is set on a per strategy basis under Settings -> Opportunity Limit in the strategy builder.
Opportunity Draw Limit
Limits the total capital draw for an individual opportunity.
Lifetime Draw Limit
Limits the total capital draw for a bot in its lifetime. Lifetime Draw Limit should always be higher than Opportunity Draw Limit, as it is meant as a stop loss when a bot has had multiple losing opportunities.Example
Alta5 will send you a notification to approve each new opportunity a bot opens. You can activate approvals in Risk Settings when starting a bot or in the Details column of the bot's dashboard.Picture
If you open a new opportunity without providing a quantity, Alta5 will use the bot's draw limits to automatically calculate a quantity. As a simplified
example, if a bot has an Opportunity Draw Limit of
$5,000 and an opportunity draws
$50 per share, the calculated quantity would be
100 shares. The actual calculation can be more complex as it factors in premium, commissions and maintenance.
You can also use custom calculations to manually set the quantity and price for an opportunity as long as they are within the draw limits set for the bot opening the opportunity.
To ensure capital draw limits are enforced, the maximum potential loss is always used when calculating the quantity for an opportunity. For example, because short selling and writing uncovered (naked) puts represents a greater risk of loss of capital, the calculated quantity for any unsecured short position is calculated on a cash basis. However, the return % for an opportunity is calculated using the actual capital/margin draw according to TD Ameritrade's margin formulas.
For more info on the formulas used to calculate draw for opportunities, see TD Ameritrade's Margin Handbook, page 11-13.
Exception - shortcall
A shortcall opportunity is the only type of opportunity that doesn't have a strictly enforced draw limit (because the max loss is unlimited). Draw is calculated at the open as: 30% of strike price minus premium per share. Once the opportunity is open the calculation has 3 possibilities described in TD's Margin Handbook, the highest of which is used:
a) 20% of the underlying stock less the out-of-the-money amount, if any, plus 100% of the current market value of the option(s).
b) For calls, 10% of the market value of the underlying stock PLUS the premium value. For puts, 10% of the exercise value of the underlying stock PLUS the premium value.
c) $50 per contract plus 100% of the premium.