Visually construct and analyze options strategies

 


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The time you saved "running your business" will give you more time to market and actually do the signings. This program was written over a period of three years while working full-time as a Signing Agent for over 60 signing and title companies, and numerous different lenders.

White Paper

  1. Visual Analysis and Portfolio Tracking for Options Trading
  2. Using Built-In Strategies to Simplify Trading
  3. Taking Advantage of Options Data Downloads
  4. Using Advanced Charts for Visual Analysis
  5. Performing Analysis of Advanced Trading Strategies
  6. Portfolio Tracking
  7. Developing Custom Strategies
  8. 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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