★ 20 Ways to Generate Stock Investment Profits with AI - 10. AI-Driven Options Trading Bots

 

10. AI-Driven Options Trading Bots

Introduction
Options provide leverage and income. AI bots can forecast implied-volatility (IV) shifts and choose appropriate strategies—straddles, strangles, or credit spreads.

Core Components

• IV Forecasting: Combine GARCH models with LSTM neural networks on historical IV time series.

• Strategy Rules:

  • Long straddle if predicted IV rise >15%.

  • Short iron condor when skew is flat and IV low.

• Risk Controls: Maximum notional exposure and daily P&L limits.

Implementation Guide

1. Data Feed: Ingest live options chain data via TDAmeritrade API.

2. Feature Engineering: Compute 25-delta skew, open interest changes, time to expiration.

3. Model Training: Fit an LSTM on IV history; use forecast to trigger entry.

4. Execution Module: Automate order submission and adjust quotes as IV evolves.

Performance Metric
During earnings seasons (2019–2023), the bot captured IV spikes with an average 20% return per trade, maintaining drawdowns under 8%.

Conclusion
An AI‐driven options bot can exploit volatility dynamics systematically—balancing return potential with disciplined risk management.