ITG Forum and Knowledge Base

Post | Search | Request help in many different categories.
  1. ITG Support
  2. Sherlock Holmes
  3. PTMC
  4. Thursday, 11 July 2019
  5.  Subscribe via email

It’s a powerful options analytics and trading module which combines the detailed quote windows as well the ability to perform what-if analysis and evaluation of the volatility smile based on Vanna-Volga model.

  • Advanced options modeling with What-If analysis by time and volatility
  • Professional option chains
  • Volatility skew charts
  • Option profiles with overlay charts (Greeks, What-If)
  • Option Greeks visualization

Option Master

The Option master panel shows detailed information about options, allows to analyze it and then to trade with selected option contracts.

To open a new Option master panel go to Terminal - > Option master.

Level 1 symbol data:

Level 1 data information of the symbol that underlies the option contract was gathered in this block. This block can be easily customized through the Context menu.

Account and symbol lookups:

Here user can select an instrument that underlies the option which user is going to analyze; and also account for trading from Accounts lookup.

Settings

Pressing the button  calls the dialog window Option master – settings. This block allows specifying general settings of the Option master panel. General settings tab is divided into three sections: General, Analyzer and Volatility smile.

General:

The section General has the following options:

  • Custom panel name – allows specifying any name for the panel, which will be displayed in the main window of Option master panel.
  • Price model – shows a price model, which will be used for calculation (currently Black-Sholes model is only available).
  • IV calculation price – allows selecting price for IV value calculation from the drop-down list. The following values are available here: Ask, Bid, (Ask + Bid)/2 and Last.
  • Strikes aggregation style – allows selecting style of strikes count from the drop-down list. There are three available styles:
      • From central strike – strikes are counted from the central strike, this is the default style of strikes aggregation;
      • Custom strikes – allows choosing strikes with which user will work;
      • Near underlier price – strikes will be counted from the specified underlier price.

  • Coloring method – allows selecting coloring scheme for Option chain tab: Classic or Historical volatility.
    • Current HV, % – shows current level of the historical volatility for the underlier (Min = 0, Max = 1000, Step = 0.1). Pressing the button  allows to reset custom value of the historical volatility to the calculated value from the symbol chart by the selected price type (described below).
    • Price – allows specifying the underlier price from which sought values Std. and 2*Std. will be plotted. The following prices are available here: Last, (Bid + Ask)/2, OHLC/4 and OHL/3.
    • ATM strike color, Std. color, 2* Std. color – standard setting for color selection.

Coloring logic

ATM strike color – it is a strike or 2 strikes, which are more closely located to the Last price of the underlier.

Std.1 = Price * (1-HV/SQRT(365)*SQRT(T);

Std.2 = Price * (1+HV/SQRT(365)*SQRT(T)), where T is quantity of days remaining before the contract expiration.

All strikes inclusively, which fall within the range from Std.1 to Std.2, should be painted in the Std. color.

2Std.1 = Price * (1-2*(HV/SQRT(365)*SQRT(T));

2Std.2 = Price * (1+2*(HV/SQRT(365)*SQRT(T))), where T is quantity of days remaining before the contract expiration.

All strikes inclusively, which fall within the range from 2Std.1 to 2Std.2, should be painted in the 2*Std. color.Coloring of Std.color occurs over 2*Std.coloring.


Analyzer:

This tab allows specifying colors and style for displaying the main lines of the option position profile:

  • Intrinsic – color, shape and thickness of the option intrinsic value line;
  • Time line - color, shape and thickness of the option time line;
  • Zero line - color, shape and thickness of the zero line;
  • Underlier price – color, shape and thickness of the line that indicates the underlier price.
  • Info window – this section allows setting up the conent and method of Info window displaying on the Analyzer chart.

Probability simulations:

  • Simulation model – available states: By absolute prices (default value), By relative prices and By logarithmic prices.
  • Simulation examples – (Min = 100, Step =1, Default value = 1000, Digits = 0).
  • Probability scenario – available values: One touch (default value) and Out of range.
  • Probability line style – color and style of the probability line.

Read more about the probability calculation algorithm using these settings here.

Volatility smile:

The section Volatility smile allows to set up parameters of the Volatility smile tab of the Option master panel. Read more about this tab here.

This section contains the following options:

  • Underlier price – allows selecting Forward price or Current last price from the pull-down list. In case the Forward price is selected, the following options are enabled for editing:
    1. Domestic rate, % – value by default = 0; step = 0.01.
    2. Foreign rate, % – value by default = 0; step = 0.01.
  • Delta – value in the range from 0 to 1, default value 0,25, step = 0.01.

Positions/Orders information: this block shows all information about positions, orders and 'test on paper' results.

Panel navigation: use this block in order to manage tabs of Option master panel.

Info panel: click this button  to enable/disable the information panel displaying.

This panel consists of 3 logical blocks:

  • Current portfolio – displays total margin requirement by portfolio of actually existing positions; margin requirement is calculated using PTRM (Protrader-risk module).
  • Portfolio + Analyzed paper positions – displays margin requirement changing in the case of adding "paper" positions to the portfolio.
  • Portfolio greeks – shows total "greeks" value by current portfolio.

Greeks – are the coefficients which used for the characteristics of option cost (premium) sensitivity to the changing of various values:Delta, Gamma, Vega and Theta.

  • Delta – is the first derivative of the option price by the underlier price; shows how option price will be changed in points, if the underlier price changes by 1 point.
  • Gamma – is the second derivative of the option price by the underlier price; shows the rapidity of the option delta change.
  • Vega – is the first derivative of the option price by volatility; shows how option price will be changed in points, if the volatility changes by 1%.
  • Theta – is the first derivative of the option price by time; shows how the option price will be reduced after one day.

Option chain

The option chain tab shows detailed information about specific option contract and allows to trade with it.

Option chain tab uses the coloring method “By difference”. Depending on what type of price change comes at a certain strike to buy or sell, it is highlighted in green or red.

User has a possibility to choose how many strikes he wants to see for each expiration date. To provide this – click on  button. Totality of option contracts available for specific underlier is displayed through the Context menu while clicking on the table header.

Check the needed option contracts in order to make them accessible for the trading in the Option chain tab.

  • IV (Implied volatility) column – shows expected volatility of the option which characterizes the degree of underlier price volatility. If IV is high, strong fluctuations of underlier price are expected.

Edit the 'Trade' column opposite to the corresponding strike in order to add a position. Set negative value to open a short position, and positive to open a long position with the corresponding quantity. Immediately after adding all positions will have the "paper" status and will be displayed in the 'Test on paper' tab. To transfer "paper" positions to the really existing, check needed in the 'Send' column and click 'Place all' button. After placing these positions will be displayed in the Positions tab.

Double click on the selected row from strike table evokes Order entry panel pre-filled with selected account and strike.

Each specific strike row has a possibility to invoke its Context menu with options to open the following panels in one click: Order entry, Matrix, Market depth and Chart.

Use Analyzer and Volatility smile tabs to analyze "paper" positions before the real trading.

Positions tab shows actually existing positions by Options with previously selected in the Instrument lookup underlier; positions opened by this underlier can be also displayed here.

Orders tab shows all orders by Options with previously selected in the Instrument lookup underlier; orders created by this underlier can be also displayed here.

Test on paper tab shows all 'test on paper' results, and also all actually existing positions which form the portfolio. Use 'Analyze' and 'Send' checkboxes to manage the portfolio. Check/uncheck the corresponding boxes in order to define which positions need to be analyzed in Analyzer tab or opened. Use 'Place all' button in order to send all selected positions to the exchange. Click 'Remove' to delete the corresponding position.

Test on paper panel contains a very useful column “Link” which is hidden by default and is used to link current asset price to the column “Price” of created (paper) order. “Link” values: Ask, Bid and Last.

SL/TP for orders

If setting located in General settings -> Trading defaults -> Show SL/TP price in offset is checked, it is allowed to edit column SL (TP) offset; SL (TP) price/risk is not available for editing and is recalculated automatically. If unchecked, it is allowed to edit column SL (TP) price/risk; SL (TP) offset is not available for editing and is recalculated automatically.

Analyzer

Analyzer tab is used for graphic analysis before starting to trade options.

Analyzer tab has the general view as follows:

The main purpose of this tab is to describe graphically the portfolio of positions (Test on paper tab), and also to model changing of impact factors on portfolio.

While setting the corresponding changes of time and volatility user can model changing of portfolio cost which consists of options and underlier.

  • Chart type – allows setting the type of displayed information on the chart. The following types are available here: P/L, Delta, Gamma, Vega and Theta.
  • 'T +' – allows modeling changes in the numbers of days remaining until expiration of option or futures contract.
  • Volatility, % – allows modeling volatility change in %; volatility modeling occurs simultaneously on all positions included in the portfolio. Range of changing: -99%..∞,%. Option "1 px" controls the width of volatility lines on the analyzer chart.
  • Lines – this setting establishes the interconnection between 'T +' and Volatility, % parameters:
    • Time change – if selected, user can add lines which simulate the change by time and apply to them the change by volatility.
    • Volatility change – if selected, user can add lines which simulate the change by volatility and apply to them the change by time.

Probability calculation:

  • Probability calculation mode – this setting allows choosing the calculation type of probability at a certain price movement of the underlier, the following values are available here:
    • None – calculation of probabilities is missing.
    • Single – allows calculating the probability of the underlier price change till the specified level set by the user in the form of a vertical line;
    • OR – allows calculating the conditional probability of occurrence of any event P1 or P2 designated by the user on the chart in the form of vertical lines;
    • AND – allows calculating the conditional probability of execution of the events P1 and P2designated by the user on the chart in the form of vertical lines.
  • Days – allows specifying the number of days by which the modelling of changes in prices will be held (Min value=1, Step =1, Value by default = 10);
  • Button "Refresh probability" – allows performing probability recalculation by click.

Analyzer chart has the same scaling rules as Volatility smile chart. Read more information about the chart scaling here.

Overlays

Option analyzer chart has a possibility to display additional data ("greeks") in the form of overlays.

Analyzer chart has two axes: main (right) and auxiliary (left). Not only auxiliary data series ("greeks"), but the same data as on the main axis can be displayed on the left axis. If both axes contain the same data, for example, PL, then only one data series will be displayed on both axes; there is no overlay in such case. Auxiliary axis supports Auto/Manual chart mode.

Right click by the auxiliary axis and choose data series to display as overlay on the auxiliary axis. Available data series: PL, Delta, Gamma, Vega, Theta.

Only one data series can be selected."What if" scenario is not applied to the data series located on the auxiliary axes. Double click in the chart area or by X axis in order to enable Auto scale mode for both axes simultaneously.

Probability calculation algorithm

Single mode

Using vertical selector the user specifies the distance from selected point by X coordinate to current Last price. After that, the side and the distance are defined:

If X > Current Last price, then UpDown=1

If X < Current Last price, then UpDown=0

  • If Simulation model = By absolute price, then R = X – Current Last price;
  • If Simulation model = By relative price, then R = X/ Current Last price;
  • If Simulation model = By logarithmic price, then R = Ln(X/ Current Last price).

After clicking on the "Refresh probability" button, all available 1 D history by the underlier will be loaded.

Point С (Close price) is selected randomly from the array of loaded history. Point C' is calculated from this point by the Y coordinate by the following rules:

  • If Simulation model = By absolute price, then С' = C + R
  • If Simulation model = By relative price, then С' = C * R
  • If Simulation model = By logarithmic price, then С' = C * e^R
Probability scenario = One touch, this type calculates probability by touch to the level.

Probability scenario = Out of range, this type calculates "out of range" probability.

Repeat the whole procedure Simulation examples times.

Probability = Positive results/Simulation examples * 100


OR mode

This mode is similar to Single mode, but instead of one selector for editing, there are two available selectors. When specifying the range for analysis, the following rule should be applied:

X1> Current last price > X2 or X2 > Current last price > X1

X1 != Current last price and X2 != Current last price

It is necessary to calculate points C’ and C’’ by the rules described in the Single mode.

AND mode

This mode allows calculating the conditional probability of the event. i.e. at first event 1 should be executed, and then event 2; event 2 cannot be executed, if event 1 is not executed.

Probability scenario setting is related only to the event 2, event 1 is always checked by the One touch scenario.

Determination of the distance:

If Simulation model = By absolute price, then

R1 = X1 - Current Last price

R2 = X2 - X1

If Simulation model = By relative price, then

R1 = X1/Current Last price

R2 = X2/X1

If Simulation model = By logarithmic price, then

R1 = Ln(X1/Current Last price)

R2 = Ln(X2/X1)

Point С (Close price) is selected randomly from the array of loaded history. Points C' and C’’ are calculated from this point by the Y coordinate by the following rules:

  • If Simulation model = By absolute price, then С' = C + R1 and C’’ = C’ + R2
  • If Simulation model = By relative price, then С' = C * R1 and С’’ = C’ * R2
  • If Simulation model = By logarithmic price, then С' = C * e^R1 and С’’ = C’ * e^R2

Probability calculation is performed similar to the Singe mode, but two events should be executed consecutively.

Volatility smile

Volatility smile tab is used for graphic analysis before starting to trade options:  .

This tab allows plotting the "Volatility smile" which is considered as a totality of IV values for a specific option contract. Also, it is possible to plot "Volatility smile" graph according to actual market data and Vanna-Volga implied volatilities model.

See the blue graph for "Volatility smile" plotted according to actual market data and the red one for Vanna-Volga implied volatilities model on the chart below:

Vanna-Volga implied volatilies model calculation algorithm

This model is plotted for selected option series and gets the following elemental parameters:

  • Days to expire of selected option series – Days/365;
  • Underlier price – can be Forward or Current last price, is calculated with taking into account interest rates.

If Forward price is selected in the settings, then Forward price is calculated this way:

Forward price = Current last price * e^(M*Days/365), where

M = Domestick rate/100 - Foreign rate/100;

  • ATM strike – is a strike, value of which is the closest to a Current last price value;
  • ATM IV – an arithmetic mean of ATM Call and Put strikes IV;
  • D Call strike – is a Call strike, Delta absolute value of which is the closest to a Delta value in the settings ;
  • D Call IV - D Call strike IV;
  • D Put strike - is a Put strike, Delta absolute value of which is the closest to a Delta value in the settings;
  • D Put IV - D Put strike IV;
  • Strikes array of selected option series.

These parameters are used in array’s model values IV calculation for selected option series.

The calculated series are reflected on the Volatility smile chart.

See more information about Vanna-Volga implied volatilities model here.

Chart settings menu

In the Chart settings menu you can choose the Side, Visible series and Volatility models to be displayed on the chart:

In order to hide the Chart settings menu, press the button  , this will result into the chart’s maximization.

  • The drop-down list in the Side section allows selecting an option side (strikes) on which the "Volatility smile" will be plotted. Available strikes are Calls and Puts:

  • The section Visible series allows selecting series for "Volatility smile". Mark series as checked to get one or more "Volatility smile" graphs plotted on the chart:

Pressing the  allows to define graph’s thickness (from 1 to 10 px), and pressing  calls the dialog window for graph’s color selection:

  • Marking the option  as checked in the Volatility models section allows to plot Vanna-Volga implied volatilities model.

This graph can also get its individual parameters via thickness and color selection (  , ).

  • The drop-down list of the Option series section allows selecting an appropriate series for Vanna-Volga implied volatilities model: 

Be attentive to choose the same series for Vanna-Volga implied volatilities model as for “Volatility smile” graph plotted according to actual market data.

Chart scaling

The chart view can be manipulated with the buttons  ,located in the buttom-right corner of the chart field:

  • Pressing the button  allows to zoom out of any random area of the chart;
  • Pressing the button  allows to zoom in to any random area of the chart;
  • Pressing the button  allows to enable selecting any area of the chart for zooming in; pressing this button again disables this option.

The chart view can be also manipulated with some additional options:

  • Hovering the cursor over a graph’s dot + mouse wheel scrolling - allows zooming in to and zooming out of a chosen dot  of any graph;
  • Clicking + holding + moving the cursor on a random area of the coordinate plane  - allows to focus the chart view on this area of the coordinate plane;
  • Clicking + moving the cursor on any area on the X or Y axis - allows to move on the left/right (X) or up/down (Y) on this area on the X or Y axis;
  • Clicking + scrolling on any area on the X or Y axis - allows to zoom in to and zoom out of this area:

PTMC Features

Comment
There are no comments made yet.


There are no replies made for this post yet.
Be one of the first to reply to this post!

Categories

Brokerage Services
  1. 9 posts
  2. 7 subcategories
Trading Terminals
  1. 873 posts
  2. 119 subcategories
Account Application
  1. 5 posts
  2. 0 subcategories
Account Funds
  1. 5 posts
  2. 0 subcategories
Data Feeds
  1. 1 post
  2. 4 subcategories
Futures Markets
  1. 0 posts
  2. 6 subcategories
Futures and Options
  1. 0 posts
  2. 0 subcategories
Uncategories
  1. 5 posts
  2. 0 subcategories

Sign in to your account

Please sign in or register to post a quick question or leave replies.

Ask a Question

Support is currently Offline

Recent Posts

Keyboard Trader: Risk Control
Risk manage your entire portfolio with easeBenefitsQuick trigger exits of your f...
837 Hits
Posted on Wednesday, 10 July 2019
Quick Start Guide to Placing a Trade
Click here to view PDF Guide to Quick Start Guide to Placing a Trade Bluewate...
1377 Hits
Posted on Tuesday, 24 September 2019
Menu Items
Click here to view PDF Guide to Menu Items Bluewater Trading Solutions PDF Guid...
1461 Hits
Posted on Tuesday, 24 September 2019

Disclaimer: There is a risk of loss in trading futures, forex, and options. Futures, forex, and options trading are not appropriate for all investors. Only risk capital should be used when trading futures. All information is for educational use only and is not investment advice. Past performance is not indicative of future results.

This website is hosted and operated by ITG Capital Management, LLC ("ITG"), which provides brokerage services to traders of futures products. This website is intended for customer support, educational and informational purposes only and should NOT be viewed as a solicitation or recommendation of any product, service or trading strategy. No offer or solicitation to buy or sell derivative or futures products of any kind, or any type of trading or investment advice, recommendation or strategy, is made, given, or in any manner endorsed by ITG and the information made available on this Web site is NOT an offer or solicitation of any kind. The content and opinions expressed on this website are those of the authors and do not necessarily reflect the official policy or position of ITG.

All Users and Contributors along with their websites, products, and services, are independent persons or companies that are in no manner affiliated with ITG. ITG is not responsible for, do not approve, recommend or endorse any User and/or Contributor Content referenced on this website and it’s your sole responsibility to evaluate All Content. Please be aware that any performance information provided by a user and/or contributor should be considered hypothetical.

HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM.

ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.

ITG has NOT endorsed or recommended the use of any product, services offered by any 3rd party User or Contributor on this forum. No person employed by, or associated with, ITG is authorized to provide any information about any 3rd party User or Contributor content. All specific brokerage related questions should be directed towards ITG.

Fair Use Policy and Legal Disclaimer
This site contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available to advance the client's understanding of technology and services offered by 3d party technology providers that we use to conduct our business. We believe this constitutes a "fair use" of any such copyrighted material as provided in Section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed without profit to those who have expressed a prior interest in receiving the included information for research and education purposes. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.

Full Risk Disclosure | Privacy Policy / Legal | GDRP Policy

Copyright © 2019 · ITG FUTURES. All Rights Reserved.