What is The Brutus Options Ranker & How is he Different From Other Options Screeners?
In this knowledge base article will will unpack the Brutus Options Ranker in detail.
Before we start, it's good to ensure you understand the high level benefits to your trading. Brutus continuously compares and ranks every option contract and near-endless combination of spreads available on the market. The goal? To bring individualized, relevant options trades to our users.
Benefits of The Brutus Options Ranker:
- Saves you time, runs automatically each day and delivers unique results
- Avoid trading emotions and biases; runs on Multi-Criteria Decision Making algos.
- Facilitates the consistency required to succeed in options trading.
Now In More Depth
Since you’ve made it to the knowledge base, I will assume that you made it through the various features pages on the site. The knowledge base section is a great way to introduce you to what the Brutus Options Ranker can really do for you. If you haven’t checked out the features pages, then that’s the best place to start.
So instead of repeating the benefits of the Brutus Options Ranker, in this article we will take a look “under the hood.”
What’s the Difference Between Brutus and an Options Screener?
The Brutus Options Ranker is essentially an options screener with one very important, additional capability. That is, the ability to rank options based on relevancy. Relevancy is determined by scoring high in a multi-criteria decision making algorithm.
See, a traditional options screener or stock screener work on a very simple principle - filtering. As you specify criteria for your search/scan there will be an additional filtering mechanism applied to the data. There's a few "advanced" options screeners available which will allow you to sort results by a risk/reward score, but such scores are not balancing multiple criteria nor individualized to the user's objectives.
Think filtering like pouring water through a fine-mesh fabric. If you pour some water from a pond directly through the mesh, it will only catch some of the particulates, but most will get through. Put together too many layers of mesh and not only will nothing get through, you’ll struggle to pour the water through itself.
This is why many screeners are so finicky. It’s not uncommon to set up a screen with your search criteria and run it only to be returned thousands upon thousands of results. Tweaking even a few parameters to get more meaningful results, will often come back with no results. Whiplashing between thousands and no results. Of course, this conventional experience is frustrating and not particularly useful either.
What's the Difference Between an Options Screener and a Stock Screener?
The main difference and challenge between a stock screener and options screener is the huge number of alternatives available for trade in options vs. stock.
Google Finance has a free stock screener which can filter through 34,616 stocks and ETFs. OptionAutomator (at the time of beta) "only" ranks options for 333 stocks and ETFs that we believe are liquid enough to trade options.
This might sound like few, but those 333 stocks produce on average over 100,000 different alternatives that could be traded on any given day! And that is after we apply our very aggressive filtering method to ensure “junk” contracts don’t get through to you.
By contrast, if a simple on-off filtering mechanism, familiar in stock and other options screeners, was used in the Brutus Options Ranker, we’d essentially be regurgitating worthless market data back at you.
This is the major issue with other screeners on the market, and while many have introduced some sort of “sorting” mechanism to help with this, sorting does not respect that trading criteria conflict!
What Do You Mean by ‘Conflicting’ Trading Criteria?
Well, the simplest example of this is the classic risk/reward tradeoff.
You might have a profitability criterion or proxy profitability criterion that you evaluate as part of your trading strategy or trading system. Perhaps this is a simple annual return on capital measure. However, if you sort from highest return on capital to lowest return on capital in your ranker results, do you know what the risk of the first-listed trade will be? Exactly, it will be the highest risk despite your desire to minimize risk.
Risk and reward is a classic tradeoff that is unavoidable in life, and certainly remains true in trading. However, not only risk and reward conflict in options trading. Next to all trading criteria conflict, the greeks, liquidity measures, duration, etc. Unfortunately there isn't a magic bullet parameter which can find the optimal risk/reward so a simple "sorting mechanism" just doesn't work. Similarly, there is no magic bullet that balances the tradeoffs between other conflicting parameters.
This problem has a close analog: web search in the 90s. See, when you went to Altavista and search “best options trading strategy” back in pre-google days, do you know what the first result would be? It would be the guy that put “best options trading strategy” in white text and 4 pt font at the end of the page 3,000 times. Not particularly useful nor relevant.
Google came around and cracked relevance in search and the Brutus Options Ranker offers a solution to crack relevancy in finding actionable trades with the least amount of effort.
So How Does Brutus Define Relevance in its Rankings?
This is a complex subject, but I’ll try. However, if you get too bored, skip to the next section. Brutus algorithms borrows methods and principles from a field of mathematics that has been around since the 70’s. That is, Multi-Criteria Decision Making (MCDM), or sometimes called, Multi-Criteria Decision Analysis (MCDA).
What MCDM or MCDA hopes to achieve is to give mathematical models (there are many types) which gives a method to evaluate alternatives against an objective (decision) by evaluating multiple criteria which would be fully satisfied in an ideal world. Of course, few decisions are “ideal” and certainly not in finance. There are many tradeoffs to be made.
This is where MCDM really shines, so long as the criteria can be quantified, it can then compare tradeoffs across the entire alternative space. This is easy to do when you have a group of stakeholders rating options against a scale of 1-10, but it is very difficult to do in finance where quantitative values are present with their own unique units and bounds.
Due to the unit problem we must employ a technique called dimensionality reduction, which is beyond the scope of this article. In short, this is a method to compare the proverbial apple with oranges. If it sounds complex, it is. However, you have been introduced to this technology multiple times in your daily life. In fact, many of the “AI” that you interact with daily uses this approach to find correlation between dissimilar data sets to make predictions and recommendations. You are familiar with this already whenever Amazon "reads your mind" and offers you an irresistible offer.
Still With Me? If Not, That’s OK. Let’s Talk About What it Means.
What it means is this:
- You can scan the entire options market for trades that meet your individual investment criteria.
- You can add unlimited criteria to your strategy (search) and not worry about over specification/no results being returned.
- Your Ranker Results will be mechanical and mathematically sound, without influence on trader emotion or market noise.
- Your results are independent and unbiased. This isn’t recommended by some pump-and-dumper on TV or social media.
- Trade discovery will take a fraction of the time it took before.
Why Not Get Started? It’s Free!
Our mission at OptionAutomator is to bridge the technology gap between Main Street and Wall Street. Therefore, we offer our tool for free with 100% optional premium upgrades when and if you’re ready.
We hope this article gives you a better understanding of what’s “under the hood” of the Brutus Options Ranker.