the underlying stock rises above the upper break-evenpoint or falls below the lower break-even point, then losses willincrease rapidly.Figures 1-7 and 1-8 illustrate long and short strangles, which arealso created by either buying (long) or selling (short) both a call anda put. Unlike the straddle, in which the call and put have the samestrike price, in a strangle, the strike prices are different. A long 95–105strangle, for example, might be created by simultaneously buying one95 Put for 1.50 per share and buying one 105 Call for 2.00 per share,for a total cost of 3.50 per share. A short strangle would be createdby selling both. Each strategy has two break-even points, which arethe upper strike price plus the total premium paid and the lower strikeprice minus the total premium paid. The long strangle proﬁts asthe price of the underlying stock rises above the upper break-evenpoint or falls below the lower one. The short strangle proﬁts if theunderlying stock price stays between the break-even points.Straddles and strangles differ from each other in three ways that arenot apparent from these ﬁgures. First, a straddle commands a higher
Option Market Fundamentals • 25
5
Profit And Loss
43210–1–290
Figure 1-7
92
94
96
98
100 102Underlying
104
106
108
110
100
104
106
108
110
Long Strangle
2
Profit And Loss
10–1–2–3–4–5
90
92
94
96
98
102
UnderlyingFigure 1-8
Short Strangle
price than a comparative strangle. A 100 straddle, for example, has ahigher price than a 95–105 strangle. Second, the break-even points fora straddle are typically closer together than for a strangle. Therefore, ifthe price of the underlying stock starts to rise or fall dramatically,
26 • Trading Options As a Professional
a straddle will begin to proﬁt before a comparable strangle starts toproﬁt. Third, a straddle has a smaller chance of expiring worthless thandoes a strangle because the stock price must settle exactly at the strikeprice for a straddle to incur its maximum loss. For a strangle, however,the stock price can settle anywhere in between and including the strikeprices, and both the call and the put that create the strangle will expireworthless at expiration.Figure 1-9 illustrates the long call vertical spread, which has bothlimited proﬁt potential and limited risk. A long call vertical spread,also known as a bull call spread, is established for a net cost, or netdebit, by buying one call at a lower strike price and selling anothercall with the same underlying and same expiration date but with ahigher strike price. The break-even point is the lower strike price plusthe net premium paid, not including commissions. An example of along call vertical spread is buying a 100 Call for 5.00 and simultaneously selling a 110 Call for 2.00. The maximum risk, in this example,is 3.00. The maximum proﬁt potential is 7.00, and the break-evenpoint at expiration is a stock price of 103.
4
Profit And Loss
3210–1–296
98
100
102Underlying
Figure 1-9
Long Vertical Call Spread
104
106
108
110
Option Market Fundamentals • 27
2
Profit And Loss
10–1–2–3–496
98
100
102
104
106
108
110
UnderlyingFigure 1-10
Short Vertical Call Spread
Figure 1-10 shows that the short call vertical spread, also knownas a bear call spread, is the mirror image of the bull call spread. Thisstrategy is established for a net credit, and both the proﬁt potential andrisk are limited. The break-even point for a bear call spread is the sameas for the long variation, but proﬁt is earned below the break-evenpoint for the bear call spread, and losses are incurred as the stockrises above it.Figures 1-11 and 1-12 brieﬂy introduce two advanced option strategies that advanced option traders need to understand, even if they donot trade them frequently. Figure 1-11 shows a long butterﬂy spreadwith calls. It was established for a net debit by buying one call witha lower strike, selling two calls with a higher strike, and buying onecall with an even higher strike. The three strike prices are equidistant,that is, 100–105–110 or 100–110–120, and all calls have the sameunderlying and same expiration date.The ﬁnal diagram, Figure 1-12, is of a long condor spread withcalls. This strategy involves four strike prices and is created by buying one call with a lower strike, selling one call with a higher strike,
28 • Trading Options As a Professional
4
Profit And Loss
3210–1–290
92
96
94
98
100
102
104
106
108
110
UnderlyingFigure 1-11
Long Butterﬂy Spread with Calls
3
Profit And Loss
210–1–2–390
92
Figure 1-12
94
96
98
100 102 104 106 108 110 112 114Underlying
Long Condor Spread with Calls
selling another call with an even higher strike, and ﬁnally, buying onecall with an even higher strike. The four strike prices are equidistant,that is, 100–105–110–115 or 100–110–120–130. Butterﬂy spreads and
Option Market Fundamentals • 29
condor spreads have both limited risk and limited proﬁt potential.They also involve several bid-ask spreads and multiple commissions.They are therefore suitable only for experienced option traders whotrade with low transaction costs.A familiarity with advanced option strategies such as butterﬂyspreads and condor spreads reinforces an understanding of optionmechanics for all levels of strategies. This familiarity also helps withthe comprehension of option prices, synthetic relationships, andarbitrage strategies.
SummaryOptions are contracts between buyers and sellers involving rightsand obligations. They do not involve direct ownership of the underlying instrument. Exercise or assignment of options, however, causespurchase and sale transactions that can create or eliminate existingstock positions. The typical option transaction involves seven decisions, whereas the typical stock transaction requires only four. Thisseemingly small difference has signiﬁcant implications that will bediscussed throughout this book.The term the market has two meanings—one is a place where tradesare made, and the other is the combination of bid and ask pricesand quantities of shares or option contracts that can be bought or sold.In options markets in the United States, there are many competingmarket makers and exchanges. As a result, the national best bid andbest offer (NBBO) might include several competing participants fromseveral locations.The mechanics of margin accounts are important to option tradersbecause many option strategies must be established in marginaccounts. Also, broker-dealers, including option market makers, areeligible to receive interest on short stock positions, the so-called shortstock rebate. The calculation of interest income and expense, as willbe discussed throughout this book, is an important consideration foroption market makers.
30 • Trading Options As a Professional
Proﬁt and loss diagrams reveal three important aspects of optionstrategies: the proﬁt potential, the risk, and the break-even point.No strategy is “best” in an absolute sense. Rather, an understanding of option price behavior and strategy mechanics, along with amarket forecast, will lead a trader to a strategy that is “best” for a givenforecast.
Chapter 2OPERATING THE OP-EVALPRO SOFTWAREomputer programs perform calculations quickly and improveanalysis, but they do not make decisions! The Op-Eval Pro software that accompanies this book combines several features that helpoption traders analyze volatility and position risk and therefore plantrades. Given inputs from the user, the software calculates option theoretical values, implied volatility, and stock price distributions. Itanswers “What if?” questions when given hypothetical forecasts, andit graphs strategies involving options only or options and stock. It alsoanalyzes position risk, the Greeks, and how they change. Every screencan be printed, and scenarios can be saved for future use. This chapter explains how to install and operate the program. Address questionsabout the software to opeval@gmail.com.
C
Overview of Program FeaturesThe Op-Eval Pro software that accompanies this text consists of sixscreens, each of which can be printed and saved for future use. TheSingle Option Calculator is used for planning single-option trades.This screen calculates theoretical values, implied volatility, andGreeks for a call and put with all the same inputs.• 31 •
32 • Trading Options As a Professional
The Spread Positions screen calculates theoretical values andGreeks for multiple-part positions of up to four different options or oneunderlying and three different options. It calculates implied volatility,and it allows input of different levels of volatility for different options.The buttons in the lower-right corner, “Price 1,” etc., make shortterm position analysis easy by automatically recalculating positionvalue and the Greeks.The Theoretical Graph screen produces a visual chart of positionsset up on the Spread Positions screen as long as all options have thesame expiration. Proﬁt and loss, theoretical value, and the Greeks canbe graphed against underlying price, volatility, time to expiration, orinterest rates. These capabilities help beginning and intermediateoption traders explore the nuances of option price behavior.The Table screen presents theoretical values or the Greeks of positions in the Spread Positions screen over a range of underlying pricesand days to expiration chosen by the user. To change from theoreticalprice to delta or another Greek, place the cursor over the table, rightclick, and then select the desired output. The box in the lower-rightcorner enables the user to change the volatility assumption.The Portfolio screen is a ﬂexible graphing tool. It graphs and calculates the Greeks for positions with up to 15 different options andone underlying. The options can have both different expirations anddifferent levels of implied volatility. This screen also has “What if?”capabilities. In other words, the user can view and analyze the impactof changing volatility and time to expiration.The Distribution screen calculates a one-standard-deviation pricerange for the underlying given a volatility assumption, a time period,and other inputs from the user. This helps with selecting option strikeprices and stock price targets.
Installing the SoftwareThe CD that accompanies this book has two versions of Op-Eval Pro,one for WindowsXP and one for Windows Vista. For this reason, theCD will not start automatically. Follow these instructions:
Operating the Op-Eval Pro Software • 33
1. Insert the setup CD in the CD drive.2. Click on “Start,” and then click on “Run.” Type “e:\setup”(or “f:\setup”).3. Click on the appropriate icon for XP or Vista.4. Double-click on “setup.exe,” and follow the instructions.5. To run the program in WindowsXP, click on the “Op-EvalPro” icon on your desktop. In Windows Vista, you must clickon “Start,” then on “Programs,” then on “Op-Eval Programs,”and ﬁnally, on “Op-Eval Pro.”
Disclosures and DisclaimersThis section contains important information about the assumptionsmade by Op-Eval Pro (Figure 2-1). You should read this entire sectioncarefully. Only with a thorough understanding of the limitations of thisprogram (or any program) can you make informed decisions. If you proceed on your own intuition and uninformed perceptions, you are notlikely to do well in any area of investing or trading, let alone withoptions. After you have read all the disclosures and disclaimers carefully,
Figure 2-1
Disclaimers and Disclosures Screen
34 • Trading Options As a Professional
you can choose “Agree” if you accept the conditions and limitations ofthe program or “Disagree” to exit the program.
Choices of Pricing FormulasOption contract speciﬁcations vary by exercise style, type of underlying security, and method of dividend payment. Op-Eval Pro can applyfour different option-pricing formulas that analyze options on individual stocks, options on indexes, and options that have Americanstyle or European-style exercise. The Single Option Calculator, theSpread Positions screen, and the Portfolio screen each have two buttons, one of which lets you choose “American” or “European,” andthe other of which lets you choose “Index” or “Equity.” The SpreadPositions screen and the Portfolio screen let you check or leaveunchecked two boxes, “IsIndex” and “IsEuropean.”Choosing “American” means that the option can be exercised early,that is, prior to expiration, and that a binomial formula is used. Thisformula assumes a number of discrete time periods, or steps, and thenperforms a discounted present-value calculation on the range of possible outcomes. The number of steps in the binomial calculation is indicated in the lower-right corner of the screen and can be changed bydouble-left-clicking on the “Steps ” button. Generally, traders do notneed to change the number of steps; “25” is satisfactory for most users.Choosing “European” means that the option cannot be exercisedearly and that a Black-Scholes pricing formula is being used. This formula uses differential calculus and does not use binomial-like steps.The difference between “Index” and “Equity” is the way that dividends are included in a formula. Equity options, which are optionson individual stocks, pay dividends at discrete intervals, that is, speciﬁcdividends that are paid on dates that are announced in advanced.Index options, in contrast, are options on a market index comprisedof many component stocks. Rather than attempting to identify thedates of the individual dividends, the formula for index options uses a
Operating the Op-Eval Pro Software • 35
yield percentage. This percentage assumes that dividends are paidevenly and continuously throughout the year, like interest on a savings account at a bank. Although an oversimpliﬁcation, this formulais a commonly accepted method of valuing index options.A word of warning: In most cases, the program makes calculationsmuch faster when the choices are “Index” and “European.” The binomial calculation for “American” and “Equity” options can be cumbersome, especially when creating graphs or when the number of stepsin the binomial calculation is large (above 25). While it is worthwhile,for educational purposes, to compare values generated by the different formulas, the difference between results is usually quite small. Youwill save time but lose little accuracy, therefore, if you choose “Index”and “European” when selecting a formula.A complete discussion of operating Op-Eval Pro will now be presented. Even experienced option traders and computer users shouldread this section to learn the full range of capabilities of the program.
Features of Op-Eval ProThis program incorporates 10 features, each of which is explained inthe sections that follow:• Single Option Calculator• Spread Calculator• Graphing• Theoretical Table Generator• Portfolio Analysis and Graphing• Probability Distribution• Print Preview• Print• Save Spread• Open Spread
36 • Trading Options As a Professional
The Single Option CalculatorFigure 2-2 shows the Single Option Calculator screen. This featurecalculates theoretical values, delta, gamma, theta, and vega for botha call and a put with the same strike price, same expiration, and sameunderlying security. Deﬁnitions of all terms appear in the Help feature of the program, which is located on the tool bar at the top of thescreen. Later chapters explain how you can use information in theprogram to analyze option prices and to estimate how those pricesmight change when given a forecast. This chapter describes only howthe various aspects of the program work.
Moving Around the Single Option Calculator ScreenThe highlighted input box can be changed either by clicking onanother box or by pressing the arrow keys. The down arrow and theright arrow move the highlighted box down the inputs column ﬁrst,then over to the “CALL” box, then to the “PUT” box, and ﬁnally, backto the “STOCK PRICE” box. The up arrow and the left arrow move
Op-Eval Pro: OP-EVAL: Single ViewEQUITY
AMERICAN
CALL
PUT
STOCK PRICE
58.00
VALUE
46.73
19.28
STRIKE PRICE
60.00
DELTA
0.93
-0.24
VOLATILITY %
35.00
GAMMA
0.00
0.01
INTEREST RATE %
4.00
VEGA
0.40
0.63
DIVIDEND
0.00
7-THETA
-0.01
0.00
DAYS TO EX-DIV
0.00
RHO
2.01
-2.51
DAYS TO EXPIRY
9999.00
Figure 2-2
Single Option Calculator
Decimal Places
2
Operating the Op-Eval Pro Software • 37
the highlighted box in the opposite direction. The boxes below the calland put values cannot be highlighted because they are “output only.”
Input RangesThe “STOCK PRICE” input box will accept any price from 0.00 to99,999.99. If you enter a whole number, such as 50, Op-Eval Pro willassume that all numbers to the right of the decimal point are zeros.After entering a price, press the “Enter” key or an arrow key, or highlight another box by clicking on it. Any of these actions will recalculate all output values.Strike price intervals in option markets in the United States varyby underlying security and by the price of the underlying security.Op-Eval Pro, therefore, has the ﬂexibility to set the strike price at anynumber between 0 and 99,999. This feature allows Op-Eval Pro to beused for options on a wide variety of underlying instruments.Volatility, as discussed in Chapter 7, is a statistical measure ofpotential price changes in an option’s underlying instrument. If otherfactors remain constant, a wider range of possible stock prices (i.e.,higher volatility) means that options have a higher theoretical value.Traders commonly express volatility as a percentage, so Op-Eval Proalso uses this practice. When the “VOLATILITY %” box is highlighted, it is possible to enter any number from 1.00 to 999.99.The level of interest rates affects the values of options because timeand the cost of money directly affect purchasing decisions. Op-EvalPro accepts interest rate input values from 0 to 99.99 percent. Experiment with this input and observe that changes in interest rates affectoption prices relatively little compared with any of the other inputs.This result is consistent with the discussion here and in Chapter 3.For the “DAYS TO EXPIRY” box, Op-Eval Pro accepts values from0 to 9,999. When counting the days to expiration, include the currentday if you are inputting data before or during market hours, but donot include the current day if you are doing your analysis after themarket close. Also, be sure to correctly input the day after the last day
38 • Trading Options As a Professional
of trading as the expiration date. For options on individual stocks, andfor American-style index options, such as OEX options, the correctexpiration date is the Saturday following the third Friday of the expiration month. (Even though expiration is technically on the Saturdayfollowing the third Friday of the month, Friday is the last trading day.)For European-style index options, such as SPX, DJX, or MNX options,the correct day falls one day earlier, the third Friday of the expirationmonth, with the last trading day being the Thursday proceeding thethird Friday.The “DIVIDEND” box input depends on the option underlying.As discussed earlier, Op-Eval Pro has different formulas for options onstocks and for cash-settled options on indexes. If “Index” appearson the Single Option Calculator, or if the “IsIndex” box is checkedon either the Spread Positions screen or the Portfolio screen, the program uses a dividend yield and assumes that dividends are paid continuously and evenly throughout the year. Find current index dividendyield percentages in the Wall Street Journal, Investor’s Business Daily,and Barron’s.If “Equity” appears, or if the “IsIndex” box is not checked, the program assumes that there are discrete dividends. As a result, two inputsare required, the amount of the dividend and the number of days tothe ex-dividend date. You will ﬁnd dividend listings in daily ﬁnancialnewspapers or on a company’s Web site. Because the binomial optionvaluation process involves discounting cash ﬂows, the number of“DAYS To EX-DIV” is required to calculate the timing of the dividendpayment.
Correct Inputs Are EssentialIf you attempt to analyze an option without the proper inputs, thevalue calculated by Op-Eval Pro could differ dramatically fromthe prices observed in the real marketplace. Improper settings arealso likely to lead to incorrect estimates of option price changes andinaccurate conclusions about strategy selection. As explained under“Disclosures and Disclaimers,” this is one of the risks you assume in
Operating the Op-Eval Pro Software • 39
using the program. Op-Eval Pro can perform optimally only if yougive it accurate information, so take the time necessary to gather goodinput data.
Calculating Implied VolatilityAssuming all inputs other than volatility on the left side of the SingleOption Calculator are correct, then highlighting either the “CALL”box or the “PUT” box, typing in a value, and pressing “Enter” causesthe volatility number to be recalculated. This number is the impliedvolatility of this option. How implied volatility can be used in makingtrading decisions and estimating results will be discussed in severalplaces in this book.If you change the value in the either the “CALL” or the “PUT” box,Op-Eval Pro will recalculate the volatility and the other value, put orcall value, using the new volatility percentage. It also will recalculateall other outputs.
The Spread Positions ScreenThe Spread Positions screen can be used to analyze a wide variety ofpositions, including one-to-one vertical spreads with only calls or onlyputs, ratio spreads, time spreads, spreads with both calls and puts, andstock and option spreads. The Spread Positions screen calculates position value and the Greeks. Clicking on the “SPREAD” item on themenu bar at the top of the screen brings up a new screen that lookslike Figure 2-3.The Spread Positions screen operates in a way similar to the SingleOption Calculator. Left-clicking highlights boxes, and you can changethe values in any highlighted box. Arrow keys also can be usedto change the highlighted box and recalculate outputs. The SpreadPositions screen contains several features that do not appear on theSingle Option Calculator screen. The following paragraphs discussthese additional features.
40 • Trading Options As a Professional
Op-Eval Pro: Spread ViewSPREAD POSITIONSOption 1 Option 2 Option 3 Option 4IsIndexTrueTrueTrueTrueIsEuropeanTrueTrueTrueTrue1-100QuantityTypeCallPutCallPutStock Price*98.0098.0098.0098.00Strike Price100.00110.00110.00110.00Volatility %30.0030.0030.0030.00Interest %*4.004.004.004.00Dividend0.000.000.000.00Ex-Div Days0000Expiry Days*60606060Multiplier11114.141.2712.5512.55Value0.480.20-0.80-0.80Delta
Figure 2-3
SPREAD GREEKSTotalValue2.870.28DeltaGamma0.01Vega0.05-0.11ThetaRho0.04
Decimal Places
2
The Spread Positions Screen
Using the Asterisk (*) to Lock a RowThe Spread Positions screen can be used to analyze two or moreoptions with the same or different volatilities or two or more optionswith the same or different number of days to expiration. This screenalso makes it possible to analyze spreads involving calls only, puts only,or options with stock. The asterisk (*) facilitates the analysis of certainspreads. If an asterisk appears next to an item in the leftmost column(“Quantity,” “Type,” “Stock Price,” etc.), then all items in that row willchange and be the same if a change is made in any cell in that row.The absence of an asterisk indicates that the numbers in that row areset individually, and a change in the contents of one input box willnot change the contents of the other boxes in that row.
Adding and Removing an Asterisk—Double-Left-ClickTo add or remove an asterisk, simply double-left-click when thecursor is over the desired input box. If an asterisk resided in the cellinitially, it will disappear. If an asterisk did not exist, then it will.
Operating the Op-Eval Pro Software • 41
Choosing “Call,”“Put,” or “Stock”When a cell in the “Type” row is highlighted, a drop-down arrow willappear. Left-clicking on this arrow opens a drop-down box that contains the items “Call,” “Put,” and “Stock.” Clicking on one item closesthe drop-down box and changes the content of the “Type” cell to theitem selected.
Be Sure that Multipliers Are ConsistentOp-Eval Pro allows the user to adjust the multiplier for all parts of aposition. Consequently, the program can value positions and drawgraphs on either a per-unit basis or a dollar basis. Care must be taken,therefore, in setting the “Quantity” and “Multiplier” rows to be surethat the numbers are consistent between the options and the underlying instrument.Be aware that the “Multiplier” affects the calculation of delta andthe other Greeks, just as it affects the calculation of value.
Plus One and Minus One ButtonsIn the lower-right corner of the Spread Positions screen are four command buttons. Click on one and see what happens. As expected, a clickon the “Price 1” button raises all numbers in the “Stock Price” rowby one full point and recalculates the option values, their deltas, thespread value, and the spread Greeks. Click on one of the other threebuttons, and a one-unit change in either the stock price or days to expiration, as indicated, will occur, and all outputs will be recalculated.These “1” and “1” buttons make it easy to estimate how a position will change in value given a change in the underlying security(in whole points) and/or a change in the number of days to expiration.For example, a trader might want to know how much the value of the100–110 call spread illustrated in Figure 2-3 will change if the stockprice rises $4 in ﬁve days. To answer this question, just click on the“Price 1” button four times (raising the stock price from 98 to 102),and then click on the “Days 1” button ﬁve times (decreasing the
42 • Trading Options As a Professional
days from 60 to 55). The result is that the spread value increases from2.87 to 4.01. The delta also rises from 0.28 to 0.32.
Spreads and Implied VolatilityYou can calculate the implied volatility of an option on the SpreadPositions screen just as on the Single Option Calculator screen. First,highlight a rectangle in the “VALUE” row; second, type in the market price of the option; and third, press the “Enter” key. “Volatility”now becomes a calculated output. This output is the implied volatility of the option whose price was entered. If an asterisk appears nextto “Volatility %,” then calculating an implied volatility for one optionin one column does not affect the values of options in other columns.However, a change in any number in the “Volatility %” row willchange all the numbers in that row.
Theoretical Graph ScreenProﬁt-and-loss diagrams are valuable for educational purposes and forstrategy analysis because they provide a visual representation of a strategy. The graphing capability of Op-Eval Pro makes it possible toquickly prepare and print diagrams, such as the ones that appearthroughout this book. There are two graphing capabilities, one ofwhich is available from the Spread Positions screen.The graphing feature from the Spread Positions screen can createtwo different types of graphs. First, it creates graphs of single- or multiple-part strategies consisting of one to four options or up to threeoptions and one stock. Second, it creates graphs of strategy sensitivities known as the Greeks, that is, delta, gamma, theta, vega, and rho.Deﬁnitions of these terms appear in the “Help” ﬁle and are discussedin depth in Chapter 4. To select the type of graph you want, right-clickon the graph, and select from the list of choices. Figure 2-4 shows aTheoretical Graph screen with the 100–110 Call spread created onthe Spread Positions screen in Figure 2-3.
Profit And Loss
Operating the Op-Eval Pro Software • 43
876543210-1-2-380
Figure 2-4
85
90
95
100 105 110Underlying
115 120
125
130
The Theoretical Graph Screen
In order for the graph feature to operate from the Spread Positionsscreen, all positions on the Spread Positions screen must have the sameunderlying price (“Stock Price”), expiration date (“Expiry Days”), dividend, “Ex-Div Days” (if applicable), and interest rate. If these inputsare not consistent, a graph cannot be created. Further, the number inthe “Quantity” row must be positive or negative for a position to begraphed. On the Theoretical Graph screen, the quantity of an optioncan be changed by clicking on the appropriate quantity, typing a newnumber, and pressing the “Enter” key.
Three Lines on the Theoretical Graph ScreenThe Theoretical Graph screen shows three lines. The line with straightsegments is a graph of the strategy at expiration. The middle line is agraph of the strategy at half the days to expiration indicated on theSpread Positions screen in the “Expiry Days” row. The middle line maybe recalculated by clicking on the “1” or “1” in the middle box inthe lower-right corner. The third line represents the strategy at the number of days prior to expiration indicated on the Spread Positions screen.
44 • Trading Options As a Professional
“Quick Change” to GraphAt the bottom left of the Theoretical Graph screen are four lines thatdescribe the strike price and quantity of Options 1, 2, 3, and 4 fromthe Spread Positions screen. Changing the quantity of a particularoption in a position will, of course, change the total position; andOp-Eval Pro will immediately graph this new position.
Graphing a Position in the UnderlyingOp-Eval Pro has the capability to graph a position in an underlyingstock. When the “Type” on the Spread Positions screen is set to“Stock,” the “Description” on the Theoretical Graph screen willchange to “Stock,” and the “Value” will be equal to the stock price.
Graphing Strategy Sensitivities (Delta, Gamma,Theta, Vega)Right-click with the cursor over a graph, and a box containing “Value,Delta, Gamma, Theta, Vega, Rho” appears. To graph one of theseitems, simply left-click on that item.
Theoretical Price TableA table of theoretical values makes it easy to quickly estimate potential proﬁt-and-loss results of a strategy over a range of possible marketchanges. It would be much more time-consuming to use the SpreadPositions screen because it only analyzes one price at time. This feature creates a table of theoretical values or sensitivities (delta, gamma,theta, and vega) for the net position