- Visual Analysis and Portfolio Tracking for Options Trading
- Using Built-In Strategies to Simplify Trading
- Taking Advantage of Options Data Downloads
- Using Advanced Charts for Visual Analysis
- Performing Analysis of Advanced Trading Strategies
- Portfolio Tracking
- Developing Custom Strategies
- Conclusion
Visual Analysis
and Portfolio Tracking
for Options Trading
Traders looking
to implement an
options strategy
often face a daunting
task - first, they
must select or develop
a strategy based
on the current market
conditions and factors
influencing the
stock. Second, they
must select from
sometimes thousands
of available options,
each with multiple
parameters such
as strike price
and expiration date.
They must then also
consider "what-if"
scenarios for their
trade to ensure
they are protected
from volatility
and pick the right
time to exit their
position.
Visual Options
Analyzer (VOptions)
is an analysis tool
for development,
testing, and application
of options strategies
that greatly simplifies
the process of analyzing
options strategies
and tracking positions.
It allows traders
to test new strategies,
manage a growing
portfolio, and explore
"what-if" scenarios
before executing
trades. Traders
can choose from
32 built-in strategies
or construct their
own. The software
includes powerful
two and three-dimensional
charts for analysis,
and provides instant
download of current
and historical stock
and options data
from the CBOE (Chicago
Board Options Exchange).
This white paper
will explore how
VOptions can be
used for more effective
options trading.
Topics include implementing
the 32 strategies
built-in to the
software, performing
options analysis
using VOptions 2D
and 3D charts, the
construction of
custom strategies,
the downloading
of current stock
and options data,
and portfolio tracking.
Using Built-In
Strategies to Simplify
Trading
VOptions greatly
simplifies the process
of analyzing options
trades by having
32 of the most effective
and popular options
strategies built-in
to the software.
Each strategy comes
complete with a
graphical representation,
an example, and
a detailed description
explaining the basics
of the strategy,
in what situations
it is typically
used, and its risk/reward
characteristics.
This information
is useful for both
new traders interested
in learning the
fundamentals of
options trading
and more experienced
traders looking
to implement new
strategies. Figure
1 below shows the
VOptions interface
for browsing built-in
strategies.
VOptions makes
it easy to implement
a strategy for a
stock of interest.
After downloading
the options information
for that stock,
the trader simply
selects the strategy
they are interested
in implementing,
sets a few parameters,
and VOptions selects
the appropriate
option(s).
Taking Advantage
of Options Data
Downloads
VOptions downloads
free options data
from the CBOE (Chicago
Board Options Exchange)
for virtually all
options listed on
the CBOE, AMEX (American
Stock Exchange),
PHLX (Philadelphia
Stock Exchange),
PCX or PSE (Pacific
Stock Exchange),
and ISE (International
Securities Exchange).
Simply enter a stock's
ticker symbol and
VOptions will download
the current stock
price and the "options
chain" for that
stock: a list of
all options for
sale, along with
information such
as expiration data,
strike price, and
current price for
each option.
For example,
if we enter the
ticker symbol "MSFT"
for Microsoft, click
"Download", and
select the "Calls"
tab, all available
call options for
Microsoft stock
are displayed, as
shown in Figure
2 below.
Using Advanced
Charts for Visual
Analysis
VOptions provides
powerful two and
three-dimensional
charts for analyzing
option strategies.
Let's say you wish
to purchase a long
call on Microsoft
stock, currently
at $29.15, since
your research indicates
the stock price
will be heading
upwards in the weeks
ahead. After downloading
the available calls,
you select to add
as a long position
a call with a strike
price $30. Immediately,
VOptions will generate
a 2D and 3D graphical
representation of
your strategy, as
shown in Figures
3 and 4 below.
The characteristics
of the long call
are shown clearly
in this chart. If
the stock price
increases from its
current level, the
profit potential
is unlimited, whereas
if the price decreases,
the trader stands
to lose the premium
paid for the option.
This chart is highly
customizable. For
example, the X-axis
can be changed to
show time, volatility,
or interest rate
instead of stock
price, and the Y-axis
can display delta,
gamma, or theta
in addition to the
total profit/loss
for each interval.
The real strength
of the 2D chart,
however, lies in
dynamic analysis.
At the bottom of
the graph is the
Slider, which lets
you see how changes
in underlying parameters
such as volatility,
stock price, time,
and interest rate
effect the profit/loss
characteristics
of your trade. Simply
change the value
for any one of these
items, and VOptions
will re-calculate
and re-draw the
chart. The Slider
feature allows traders
to easily perform
"what-if" analysis
of trades. The 2D
Chart also allows
traders to compare
strategies. Graphs
of two or more strategies
can be superimposed,
allowing for quick
comparison.
The 3D chart,
as shown below in
Figure 4, allows
traders to add an
additional parameter
to their visual
analysis. For example,
the chart below
is for the same
strategy but displays
time in addition
to profit/loss and
stock price. This
allows the trader
to also see the
effect of both time
and stock price
together on the
profit/loss characteristics
of this strategy.
Performing Analysis
of Advanced Trading
Strategies
VOptions makes
it easy for traders
to analyze spreads
and other advanced
trading strategies.
Profit/loss characteristics
for several options
can be combined
on a single graph,
providing an excellent
overview of the
potential returns
and risk of your
advanced option
strategy. VOptions
also does the work
of selecting the
most appropriate
option(s) for the
strategy you wish
to implement.
Portfolio Tracking
VOptions makes
it easy for traders
to manage a growing
portfolio of options.
You can keep track
of all your positions
using a single,
intuitive interface.
Conclusion
VOptions greatly
simplifies the process
of analyzing options
strategies and tracking
positions. Its built-in
strategies, options
data downloads,
and advanced charting
capabilities provide
the options trader
with a powerful
set of tools. Easy-to-use
and powerful, the
software is suitable
for new, experienced
and advanced traders
alike.
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