PreferredTrade 6.2

Analyze Positions

Analytics is a tool that gives investors the ability to:

• Compare current option prices and implied volatility to historical volatility.

• Perform instant analysis by simulating changes in a variety of factors – for example, stock price.

• Evaluate the potential profit/loss of real or hypothetical positions.

To Analyze your positions, right clicking on the stock from position greeks and left clicking on "Analyze". The following screen will appear.

Your existing positions will load automatically. You can also enter hypothetical positions; this will be discussed under the section titled ADDING HYPOTHETICAL POSITIONS. The analytics tool will instantly calculate numbers for the various columns. The sections that appear on the screen include:

Interactive Variables

Various factors will have an impact on options that in turn will affect a trader’s profit/loss. Traders can use analytics to play with these factors to determine how these changes will affect their profit/loss possibilities. Changes in any of the interactive variables will be reflected in the graph to the right. The graph type can also be changed here.

Position Detail

This section shows the breakdown of each holding within each position. The following columns are found in this section.

• Symbol: Lists the stocks and options in your account by their symbols.

• Position: This is either the number of shares or option contracts owned. This field is editable.

• Volatility: Historical volatility. This is a moving average of historical implied volatilities of at the money options. This field is editable.

• Trade: Lists the net number of positions you have bought or sold on the day for each stock or option. If you have bought and sold the same number of positions, then the net is zero.

• Edge: Displays the dollar amount, if any, that a market bid (ask) is greater (less) than the user’s theoretical value. It is a positive dollar amount if the market ask price is less than the user’s theoretical value; it is a negative dollar amount if the market bid price is greater than the user’s theoretical value.

• Theo: An option value generated by a mathematical option's pricing model to determine what an option is really worth. The pricing model that we use is binomial.

• Current Price: This is the current price mark, (bid + ask)/2.

• YestPrice: This yesterday's price for current positions. If you add a new position it will be the current price.

• Profit/Loss: Real time total of profit or loss for all positions during the trading day.

• Delta: The change in the price of an option relative to the change in the price of the underlying stock. For a call option, a delta of 0.50 means a half point rise in the option price for every dollar that the stock goes up. For a put option, a delta of 0.50 means a half point rise in the option price for every dollar that the stock goes down.

• Decay (Theta): The rate of change in an options value as time passes. A portion of every options value will be time value. Time value is that portion of an options price which represents the amount of time until expiration. An option’s time value will be greater for those options with a longer amount of time until expiration as there is a greater likelihood that they will increase in value. This time value gradually decreases (decays) as the expiration day nears. An option’s price decay tends to accelerate in the 30 days before expiration. The previous four items are generally referred to as the “greeks” and are simply mathematical calculations used to determine the effect of various factors on options.

• Gamma: The change in delta for every point change in the underlying stock.

• Vega: The rate of change in an option’s value relative to a 1% change in the volatility.

• OPRA: This is the option symbol that the Option Price Reporting Authority uses.

• Expiration Date: The day on which options expire. The expiration day is the Saturday following the third Friday of every month.

Simulations

The simulations function can be found at the top of the positions screen and provides the ability to perform instant profit/loss analysis by simulating changes in a variety of factors. Users can chart the effects of changes in the analysis date, dividend, interest rate and volatility on potential profits or losses in real or hypothetical positions. Users can also chart how a positions greeks change. The analytics tool will update the greeks in the positions based on the new parameters.

To make changes to the chart simply click on the down arrow next to the field to be changed. To change the fields that do not have drop down boxes, place the cursor in the desired box and make the desired change. Users can also change the position detail to show the greeks broken down by month by changing the Detailed Layout.

Creating Hypothetical Positions

Hypothetical positions can be created from the Position Matrix. The easiest way to create a hypothetical position is to simply click on Edit Position or New Position button and the Position Matrix window will pop up. Enter the option position in the matrix and click "Apply" and "Close". The position has been added and is ready to be analyzed.

The graphics provided are for illustration purposes only.
Newedge USA, LLC does not offer investment advice.