Disturbing delta discrepancy between TOS and OptionsVue

D

darkshogun

I find this disturbing. I like the TOS platform and was thinking about opening an account there until I discovered some online videos demonstrating how far off the deltas are compared to OptionsVue's 'true delta gamma' setting. The strategies I've been researching were based on OptionsVue's data and If I used the same strategies on TOS the strategies would be very negatively affected by the discrepancy in deltas between it and OptionsVue. Which brings me to the question, are there any brokers out there whose delta data actually match OptionsVue's? Which brokers use a model that truly reflects actual delta and other greeks of options? How about Interactive Brokers? How do they compare?

http://www.youtube.com/watch?v=JKEQ7ve7dCs

http://www.youtube.com/watch?v=bMtcmjT2UQA
 
Are you seeing delta differences that are "material." Are they in options based on stocks that have dividends or are hard to borrow?

1245
 
Quote from 1245:

Are you seeing delta differences that are "material." Are they in options based on stocks that have dividends or are hard to borrow?

1245
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The discrepancies are evidently material enough to drastically affect the profitability of certain strategies if you go by the TOS greeks instead of by OptionVue's, according to a certain online options teacher that posts his trades in videos. Makes me wonder if some brokers deliberately distort their greeks to pocket clandestine profit. It's hard enough to trade without that kind of crap, if that's what's going on. Looking for brokers that show the actual delta gamma like OptionVue does instead of a distorted version.
 
Quote from 1245:

Are you seeing delta differences that are "material." Are they in options based on stocks that have dividends or are hard to borrow?

1245
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They were in the RUT index.
 
Quote from 1245:

My best guess is that TOS is calculating the Greeks off the cash index while the RUT options trade off the future. The future would include cost of carry and dividends while the cash would be the last sale of the components.

Check out the differences between the different settlement months:

http://www.barchart.com/commodityfutures/Russell_2000_Mini_Futures/RJ*0

1245
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It wasn't options on futures. If you've got the time you should check out the videos I posted in the two links.
 
Quote from darkshogun:

It wasn't options on futures. If you've got the time you should check out the videos I posted in the two links.
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I understand that. If you are trading IWM, the ETF, the options are priced off the ETF. If you are trading the RUT, the cash settled index, the market makers price the options off the last sale of the Russell future that best covers the option expiration. There is a big difference between the last sale of the Russell cash index and the last sale of the future. In calculating the Ivol, this would cause a difference.

1245
 
Quote from 1245:

I understand that. If you are trading IWM, the ETF, the options are priced off the ETF. If you are trading the RUT, the cash settled index, the market makers price the options off the last sale of the Russell future that best covers the option expiration. There is a big difference between the last sale of the Russell cash index and the last sale of the future. In calculating the Ivol, this would cause a difference.

1245
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Apparently the OptionVue people think that TOS is just being lazy and using a simplified model compared to theirs. It looks like you can change some settings in OptionsVue to make the deltas somewhat similar to those in TOS. According to them the default setting in OptionsVue is "actual delta gamma" which is supposed to be more accurate. If this truly is the case, I would be hesitant to employ any strategies based on TOS's greeks.
 
Quote from darkshogun:

Apparently the OptionVue people think that TOS is just being lazy and using a simplified model compared to theirs. It looks like you can change some settings in OptionsVue to make the deltas somewhat similar to those in TOS. According to them the default setting in OptionsVue is "actual delta gamma" which is supposed to be more accurate. If this truly is the case, I would be hesitant to employ any strategies based on TOS's greeks.
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Also, the delta difference seemed nominal to me. If you use three different models you will get three different values. Also in the video they discussed why put and call deltas are different and they said because of skew. I don't agree with their reasoning.

Just my opinion....1245
 
I personally would not be worried about it, as there are often small differences between platforms in the greeks and IV. In my opinion it should not really affect your trading. If the strategy you are using is so dependent on a specific delta value that a slightly different value destroys the profitability, I would suggest looking for a more robust strategy as day-to-day market volatility will have a much bigger effect on your ongoing P/L. I trade index options e.g. on RUT and SPX and have never felt impacted by the greeks being based on cash rather than futures as they track so closely. Terminal distribution is the same no matter what greeks the platform is giving you.

An exception in my mind is VIX options, where the spot can be substantially different from the futures value especially in back months, and many platforms including ToS give greeks based upon spot. It is just something to be cognizant of especially if you are putting on a large position.

Always take things with a grain of salt that vendors are telling you...they have a vested interest in convincing you to shell out your hard-earned money for their software (in this case 1K).
 
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