actually you can do it on the trade page...when you pull up your option chains have one of your information layout categories (top right) as Prob of Expiring...1 sigma is like 63% and 2 sigma 90% ? The analyze tab does it too but I seldom go there.
SPX Credit Spread Trader
- Thread starter El OchoCinco
- Start date
actually you can do it on the trade page...when you pull up your option chains have one of your information layout categories (top right) as Prob of Expiring...1 sigma is like 63% and 2 sigma 90% ? The analyze tab does it too but I seldom go there.
When you are on the Probability Analysis page just look at what expiration you want (Oct, Nov, Dec) and look where the vertical dashed lines cross the yellow curve. They even list the number at the intersection. You can change 1SD, 2SD and 3SD in the upper right hand corner of the screen. If you are on the Risk Profile page, the light blue area is the SD area.
Yeah, just remember on the trade page the probability of expiring value is derived from market prices for that particular option series in the same way that implied volatility is derived for a given option series e.g.
SPX 1300 OCT PUT IV: 14.59% DELTA: -0.09
Probability of expiring ITM: 9.02%
However, on the analyze page, the probability cone is constructed based on the IV level plugged into the model. Normally, it picks up the front month/week ATM IV so you may need to adjust it to the appropriate level. Thanks to the weeklies on SPX,OEX and XEO, a misleading IV level (and also expiration date) is usually defaulted. The front month ATM IV is currently 9.95%. Using this value we get:
1300 price level.
Probability of expiring ITM: 2.41%
The difference in the two probability outputs is of course due to the volatility skew. The demand for OTM PUTs can make it look like the market thinks they are more likely to finish in the money than your Black Scholes model would have you otherwise believe.
Which one to use? Well beyond the scope of this thread LOL.
MoMoney.
Also, on Risk Profile page:
1) Ensure "prob date" (top right) is set to correct expiration date.
2) Hit "Reset slices" button (middle right) to clear any earlier slices.
2) Hit "Set Slices" button -> -1sigma base +1sigma
This will draw three slices on your risk profile: the left and right slices mark + and - sigma levels and will also correspond with the probability cone (light blue) if your "prob range" (top right) is set to 68.00% as per Ryan's description.
It doesn't get any easier than that.
Note: as per previous post, ensure that the volatility number being used is sensible (check this by reading from the top left of the probability analysis chart). If the number is not correct, click on the wrench (bottom right, under DELTA) and use "Vol Adj".
Analyze tab tutorial (86 mins) will answer all questions:
http://www.thinkorswim.com/tos/displayPage.tos?webpage=softwareSupport#tutorials
MoMoney.
You asked for it...
1) Set alerts/alarms on your trading software to e-mail you or better still SMS you when underlying reaches a predefined level.
2) Invest in a PDA or learn to use your phone to trade depending on what your broker supports and functionality offered.
3) Consider calling your broker to perform your trades or even leave instructions for scenarios just like this. Time is money.
4) Consider employing more conservative strategies where a 15 point move won't suddenly put a large % of your account at high risk.
I personally would advise against rushing into new positions to try and make up for recent losses. You could easily end up having to cover that spread for $5 or more too :eek: If we reach 1360, just 10 points from here, you are already in your adjustment zone and within reach of SET.
How about 10%. You may want to consider initiating positions that you can't can easily be "scared" out of. This could entail much smaller position sizes and potentially also more palatable risk/reward in your position as rally has been discussing.
Good luck.
MoMoney.
rally, i am curious to see how your p/l has been through this runnup? we all know how most everyone here has done.
times like these is exactly the perfect opportunity to see how each strategy performs. do you agree?
for my opinion and thoughts.... everytime riskarb writes; i hear my first cousin echoing. seven years ago i placed him in a job with my best friend at bear stearns. at that time i knew much more than him; but i knew that despite the nepotism, he would excel beyond many others. he has move on and up since then.
now he speaks like risk, explaining about short gamma, and all that other stuff. my point is, others understand how you can be wiped out. for me, i need to go to the local university library and study what they tell us. it cannot be learned at home on the computer, imo. i still have not learned the "big picture" of what they teach, so instead i trade the following way.....
in my trading, similar to fotm spreads, i am wfotm naked. my shorts are still 52 pts away on the call side. with this recent activity, my short calls are trading for less than when i wrote them. i also received imo just compensation when they were put on. my point being, out of three strategies(ctm, fotm, and wtfotm) , in the current environment(strictly concerning current situation) mine is the profitable one. not gloating at all, i just feel it is important to show in real time how different trading strategies behave in certain conditions.
times like these is exactly the perfect opportunity to see how each strategy performs. do you agree?
for my opinion and thoughts.... everytime riskarb writes; i hear my first cousin echoing. seven years ago i placed him in a job with my best friend at bear stearns. at that time i knew much more than him; but i knew that despite the nepotism, he would excel beyond many others. he has move on and up since then.
now he speaks like risk, explaining about short gamma, and all that other stuff. my point is, others understand how you can be wiped out. for me, i need to go to the local university library and study what they tell us. it cannot be learned at home on the computer, imo. i still have not learned the "big picture" of what they teach, so instead i trade the following way.....
in my trading, similar to fotm spreads, i am wfotm naked. my shorts are still 52 pts away on the call side. with this recent activity, my short calls are trading for less than when i wrote them. i also received imo just compensation when they were put on. my point being, out of three strategies(ctm, fotm, and wtfotm) , in the current environment(strictly concerning current situation) mine is the profitable one. not gloating at all, i just feel it is important to show in real time how different trading strategies behave in certain conditions.
don't be a tease
...no down and dirty way to determine?Quote from RichardRimes:
don't be a tease
It's a topic well beyond the capabilities of my feeble brain! If in doubt, choose the more conservative figure.