
# Bear Call Spread

## Strategy name and alternative names

**Bear Call Spread**. An alternative name is **Credit Call Spread**.

## Main characteristics

Bearish position.
It is a vertical spread involving an equal number of long and short calls on the same underlying asset and with the same expiration date.
It is a credit spread, which means you receive money to put on the position.
The strategy profits as long as the price of the underlying security remains below the breakeven point.

## Options used in the combination

Sell to open one at-the-money (ATM) call and **simultaneously** buy to open one out-of-the money (OTM) call.
The strike price of the short call is below that of the long call.
The advantage of this spread is that it benefits from time decay and provides an immediate inflow of cash.
The maximum gain and loss on the spread are very limited and well defined.

:::cut:::

## Risk profile

![](vbcs_exp-pnl-1024x576.png){.thumb}
Figure: Fig. 1, P&L Chart: The X axis is price and Y axis is profit/loss. The range of the Y axis is plus or minus the distance between the two strikes. The domain of the X axis is centered on the strike price of the short call.

**Maximum profit**
: The net credit received when you put on the spread.

**Maximum loss**
: The maximum loss occurs when the price of the underlying security hits
or rises above the strike price of the long call.
It is equal to the difference between the long and short strikes minus the net credit received.

**Breakeven point**
: At expiration, the breakeven point is the strike price of the short call plus the net credit.

**Key points**
: On a profit/loss chart (see above) where the X axis is price and the Y axis is profit/loss,
the value of the spread is a minimum at or above the long call’s strike price.
The spread is composed of three connected line segments.
The leftmost segment is horizontal from zero to the strike price of the short call.
The middle segment is a negatively sloped diagonal line starting at the strike price of the short call
and continuing until the strike price of the long call.
The rightmost segment is a horizontal line beginning at the strike price of the long call
and continuing to the right.
The breakeven point is the X-intercept.

## Preconditions to open this spread

You would put on a Bear Call Spread if you feel that the underlying asset’s price will remain stagnant
or decline through expiration, and wanted to profit if your prediction is correct.
The spread is more conservative than a naked short call, because the long call limits the maximum loss.
However, the long call reduces the net credit received compared to simply shorting the call.

## Greeks

![](greeks-1024x576.png){.thumb}
Figure: Fig. 2, Greeks

### Delta

An option’s probable price movement in relation to the price movement of the underlying stock.
The value ranges from `0` to `1` for a long call and `-1` to `0` for a short call where 0 means the option price is not affected by the stock price,
and 1 means the option prices moves penny for penny in lockstep with the underlying’s price.
Delta of whole spread thus ranges from a negative value to `0`.
While the overall spread is considered neutral, it is negative when the underlying price rises toward the short strike
and reaches a minimum at the average strike price.
As the underlying’s price continues to rise above the average strike, delta increases until it final returns to its maximum value of `0`.
In other words, the delta curve is symmetrical around the average strike price.

### Vega

Vega is the effect of the underlying stock’s volatility on the option’s price.
For example, a vega of `0.3` means that an option’s price will rise by 30 cents for each point increase
in the underlying stock’s implied volatility. For a Bear Call Spread, you want vega to drop after putting on the spread,
because you’d like the price of the underlying asset to remain stable. Vega is zero when the underlying’s price
is well below the short strike, and becomes increasingly negative until the underlying’s price approaches the short strike price.
Vega reverses and increases as the underlying’s price continues to rise, crossing the X axis (`vega = 0`)
at the average strike and continuing to rise until hitting a maximum somewhat beyond the long call’s strike price.
It then reverses direction again and approaches zero as the underlying’s price continues to rise.

### Theta

The time decay of an option’s price as the expiration date approaches.
At the close of expiration day, an option’s theta is `0`. Theta is lower for long expiration periods,
which means the option loses time value more slowly than it would for short expiration periods.
A longer expiration period increases the chance that the spread will expire in the money.
Theta for a Bear Call Spread is positive (which means the short spread doesn’t lose value over time)
until the underlying’s price rises to a point between the two strike prices.
At that point, theta becomes negative, because there is less chance that underlying’s price will return to the short strike price.

### Gamma

This is the rate of change of delta – the responsiveness of the position to the underlying’s price movement.
In a Bear Call Spread, gamma is negative below the average strike price, which means delta will decrease in the direction of the stock move.
Gamma is positive above the average strike, and a further upmove by the underlying asset increases delta.
If the underlying moves far above the average strike, gamma re-approaches zero.

## Dynamic illustrations

![](vbcs_time.mp4){style="width: 100%; height: 100%;" autoplay="autoplay" loop="loop" controls="controls"}
Figure: Fig. 3, Time decay animation: Describing physics of the spread’s price as time expires.

![](vbcs_vola.mp4){style="width: 100%; height: 100%;" autoplay="autoplay" loop="loop" controls="controls"}

Fig. 4, Volatility dependency animation: Describing physics of the spread’s price when implied volatility rises or falls.

## Position example on current market conditions

Assume the share price of XYZ stock is `$100.00`.
Sell to open one XYZ 100-strike call with 60 days until expiration and simultaneously buy to open one XYZ 105-strike call
with the same expiration for a net credit of `$1.27`. Neglect commissions.

**Net Credit**
: `$1.27`. You receive `$127`, which is escrowed in your margin account.

**Maximum profit**
: `$127`

**Maximum loss**
: `100 x ($100 – $105 + $1.27) = -$373`

**Breakeven point**
: `$100 + $1.27 = $101.27`

## How to manage position

You are bearish on the underlying asset and would like the underlying’s price to remain stable or decline.
Here are a few things to do if the underlying’s price moves.

### Weak upward move

If the underlying security weakly moves above the short call’s strike price but you remain bearish,
you could close out the spread and replace it with a long put or long straddle to take advantage of a drop in the underlying’s price.

### Strong upward move in underlying stock price

If the underlying security moves above the breakeven point and you are afraid it will continue to rise,
you can convert the Bear Call Spread into a Short Call Ladder Spread by buying one or more OTM calls at increasingly higher strike prices.

### Strong downward move in underlying stock price that you expect to continue

You could sell to close the long call and recoup a little of the premium.
This would transform the position to a naked short call with unlimited risk.

## Variation

The Bear Call Spread has a negative risk/reward ratio, meaning you can lose more money than you can gain.
If you are long-term bearish on the underlying asset and want a better risk/reward ratio, you could put on a Deep ITM Bear Call Spread,
in which both the short and long calls are deeply in the money. Because the value of deep ITM options are due mostly to intrinsic
rather than time value, a surprise upward move in the underlying’s price would have very little effect
on the price difference between the short and long calls. Thus, upside risk is minimal.
Conversely, the net credit on a Deep ITM Bear Call Spread should be close to the difference
between the two strikes, since time value is relatively small.
You can structure a Deep ITM Bear Call Spread such that the risk/reward ratio approaches `1:9`.

## Summary

A Bear Call Spread limits your gains and losses in well-defined ways.
The standard Bear Call Spread has an unattractive risk/reward ratio, but you can improve the ratio by using deep ITM calls.
A further risk with a Bear Call Spread is that you are in danger of being assigned whenever the underlying’s price is above the short strike price.
If you are assigned, you must deliver the underlying asset at the strike price, which will cut into your profit or cause you a loss.
Even though you’ve covered the short call with a long call, you still must establish a long position for at least one day so that you can deliver it.
If that occurs, the long call won’t help you unless the underlying’s price rises above the long strike,
since the long call’s strike price is the maximum price you’ll have to pay for the underlying asset.



# Straddle

## Strategy name and alternative names

**Straddle**. An alternative name is **Long Straddle**.

## Main characteristics

Neutral position. It is a combination involving an equal number of long puts and long calls at the same strike price and the same expiration date.
It is a debit combination, which means you must pay to put on the position.
The strategy profits when the price of the underlying security moves up or down beyond the breakeven points.

## Options used in the combination

Buy to open one at-the-money (ATM) call and simultaneously buy to open one ATM put.
Both options derive from the same underlying stock and have the same strike price and expiration date.
The advantage of this combination is that it benefits from volatility, independent of the direction of stock price movement.
Both the put and the call have (potentially) unlimited upsides but limited loss exposure.

:::cut:::

## Risk profile

![](straddle_exp-pnl-1024x576.png){.thumb}
Figure: Fig. 1, P&L chart: The X axis is price and Y axis is profit/loss. The range of the Y axis is maximum loss to potential gain. The domain of the X axis is centered on the strike price.

**Maximum profit**
: If the stock price rises, the profit on the call leg is unlimited, and is equal to the difference between
the underlying’s price and the call strike price, minus the premium on the straddle (we’ll ignore commissions).
Upside potential on the call leg is unlimited.
If the stock price falls, the profit on the put leg is virtually unlimited, and is equal to the difference
between the put strike price and the underlying’s price, minus the premium on the straddle.
(Technically, upside potential on the put leg is limited to the strike price of the straddle minus the premium,
because a stock price can drop to no lower than zero.)

**Maximum loss**
: Premium paid, which equals the premium on the call plus the premium on the put.
Occurs when the underlying’s price at the expiration exactly equals the strike price.

**Breakeven point**
: There are two breakeven points on a straddle.
The upper breakeven point equals the strike price plus the premium paid.
The lower breakeven point equals the strike price minus the premium paid.

**Key points**
: On a profit/loss chart (see below) where the X axis is price and the Y axis is profit/loss,
the value of the combination is a minimum at the straddle’s strike price.
The strike price forms the base of a V-shaped curve, that is, two diagonal lines with opposite slopes
that rise from a point with (X,Y) coordinates of (strike price, stock price minus premium).
The maximum loss, at the strike price, is the premium. The left (put) leg of the V rises as the stock price falls
and is bounded by the y-axis. The right (call) leg of the V rises without limit as the stock price rises.
The left and right legs of the V cross the X axis at the breakeven points.

## Preconditions to open this combination

You would put on a straddle in the hope that the underlying stock will quickly break out or break down from the strike price.
You would choose an underlying stock that is relatively volatile, as this increases the chances that the stock price will move away
from the strike price (see the vega chart).
You don’t need an opinion on price direction to profit from a straddle, if the stock price moves a sufficient amount.
Some traders put on straddles just ahead of a corporate announcement, jury verdict or earnings announcement,
in the hope the news will move the stock price.
Your biggest fear is that the price of the underlying stock will not move far enough away from the strike to recoup all your premium.

## Greeks

![Fig. 2, Greeks](greeks-1024x576.png){.thumb}

### Delta

An option’s probable price movement in relation to the price movement of the underlying stock.
The value ranges from `0` to `1` for a long call and `-1` to `0` for a long put
where `0` means the option price is not affected by the stock price,
and `1` means the option prices moves penny for penny in lockstep with the underlying’s price.
Delta of whole spread thus ranges from `-1` to `1`.
At the strike price of a straddle, the deltas of the put and the call cancel each other out,
which is why the straddle is delta neutral.

There is a wrinkle when the stock price does not exactly match the strike price.
If the call is slightly in-the-money (`ITM`), it will have a slightly higher delta value than will the put,
giving you a positive delta position that, in the short term, gains on the upside and loses to the downside.
The reverse is true if the put is slightly ITM.
This is only a concern if you sell to close the straddle before expiration;
If you hold till expiration, the effect of a slightly non-neutral delta evaporates.

### Vega

The effect of the underlying stock’s volatility on the option’s price.
For a straddle, higher vega translates into higher option prices, all things being equal.
For example, a vega of `0.3` means that an option’s price will rise by `30` cents for each point increase
in the underlying stock’s implied volatility.
Buying a straddle during periods of high implied volatility can be disadvantageous,
because a volatility crunch will collapse the time value of the put and call premiums.

### Theta

The time decay of an option’s price as the expiration date approaches.
At the close of expiration day, the option’s theta is `0`.
Theta is lower for long expiration periods, which means the option loses time value more slowly
than it would for short expiration periods.
A longer expiration period increases the chance that the combination will expire in the money.
Theta for a straddle is negative (which means the combination loses value over time)
because the options lose value over time due to time decay.

### Gamma

This is the rate of change of delta – the responsiveness of the position to the underlying’s price movement.
In a straddle, gamma is positive, which means delta will increase in the direction of the stock move.
On an upward stock move, a positive gamma dictates that the delta of the straddle becomes increasingly positive,
while on a downward stock move, the straddle’s delta becomes increasingly negative.
You can thus profit from a move in either direction with a straddle.

## Dynamic illustrations

![](straddle_time.mp4){style="width: 100%; height: 100%;" autoplay="autoplay" loop="loop" controls="controls"}
Figure: Fig. 3, Time decay animation Describing physics of what’s going on with combination’s price when time goes towards expiration.

![](straddle_vola.mp4){style="width: 100%; height: 100%;" autoplay="autoplay" loop="loop" controls="controls"}
Figure: Fig. 4, Volatility dependency animation Describing physics of what’s going on with combination’s price when an implied volatility rises or falls down.

## Position example on current market conditions

Assume its mid-January and United Technologies (UTX) is trading at `$110.00`.
Buy to open 10 UTX March 03 110 calls for `$2.60` each, buy to open 10 UTX March 03 90 puts for `$3.20` each.
Neglect commissions.

**Net Debit**
: `$2.60 + $3.20 = $5.80`. You pay `$5,800`.

**Potential** **profit**
: `10 x (|strike – stock price| – $580)`

**Maximum loss**
: `$5,800`

**Breakeven point 1**
: `$110 + $5.80 = $115.80`

**Breakeven point 2**
: `$110 – $5.80 = $104.20`

## How to manage position

This is a debit combination with limited risk and unlimited reward.
Here are two things you can do.

### Strong move in underlying stock price

1. If the underlying stock moves beyond the breakeven point,
   you can sell to close the out-of-the-money (OTM) option to recoup a little of the premium.
2. If the ITM leg has gained significant value despite time decay,
   you can sell the ITM option for a substantial profit.
3. You can sell to open an option (put or call) one strike further OTM than the strike for the favored leg,
   thus converting one side of initial straddle into a vertical spread.
   This will compensate you for the initial premium you paid.

### Strong move in underlying stock price that you expect to continue

You could sell to close the OTM option and use the proceeds to buy more contracts of the in-the-money option,
at a strike price of your choosing.

## Variation

If you have a mildly bullish inclination, you can put on a strap, which is a straddle with more calls than puts.
If you have a mildly bearish inclination, you can put on a strip, which is a straddle with more puts than calls.
You’ll make more profit with either variation than you would with a straddle when you correctly guess
the direction of stock movement, but you’ll profit less if you guess incorrectly.

If you already own the underlying stock, you can create a synthetic straddle by purchasing ATM puts.
Similarly, if you have already shorted the stock, you could buy ATM calls.
This works best when the stock price is very close to the option strike price.

## Summary

A straddle limits your losses to some amount between zero and the premium
if the stock price remains between the two breakeven points.
There is no profit limit on the upside, and the downside profit is limited only
to the extent that a stock price can’t fall below zero.
If the stock price moves substantially, your ROI will be smaller
than it would be from a naked long call or put position,
but you would have to correctly guess the direction of the movement to realize the higher ROI.
You might be able to make a profit on a straddle even if the stock price doesn’t move.
This is possible only when the implied volatility of the straddle jumps soon after purchase
and thereby expands premiums (through an increase in time value) above the amount you paid.
You could then sell the straddle for a profit, albeit probably a small profit.



# Vertical Bull Debit Call Spread

## Strategy name and alternative names

**Vertical bull debit call spread.** An alternative shorter name is **bull call spread**.

## Main characteristics

Moderately bullish. It is a vertical spread, which means it involves two or more options at different strike prices
with the same expiration date. It is a debit spread, which means you must pay to put on the position.
The strategy profits when the underlying security rises moderately.

## Options used in the spread

Buy to open one at-the-money (ATM) call and simultaneously sell to open one out-of-the money (OTM) call.
Both calls derive from the same underlying stock.
The advantage of this spread is that the credit from the sale of the OTM call partially offsets the debit paid for the ATM call.
Basically, the spread allows you to buy the ATM call at a discount
in exchange for a cap on the maximum profit you can extract from the spread.

:::cut:::

## Risk profile

![](vbcs_exp-pnl-1024x576.png){.thumb}

**Maximum profit**
: Equals the strike price of the OTM call minus the strike price of the ATM call
minus the net premium paid minus commission.
Achieved when underlying’s price rises to or above the OTM call’s strike price.

**Maximum loss**
: Net premium paid plus commission. Occurs when underlying’s price is not greater than the ATM call strike price.

**Breakeven point**
: Strike price of ATM call plus net premium.

**Key points**
: On a profit/loss chart (see below) where the X axis is price and the Y axis is profit/loss,
the value of the spread from left to right (lower to higher prices) is constant
at maximum loss until the underlying’s price exceeds the ATM call’s strike price.
The line representing the value of the spread increases diagonally as you move to the right (increasing price).
The value is zero at the breakeven point, and reaches its maximum value at the strike price of the OTM call.
Further increases in strike prices have no effect on the profit/loss of the spread, which remains constant.

## Preconditions to open this spread

You would put on a bull call spread in the hopes that the underlying stock will rise to the strike price of the OTM call by expiration date.
You would choose an underlying stock that is relatively volatile, as this increases the chances
that the stock price will move toward the OTM call’s strike price (see the vega chart).
Since your potential maximum loss is limited, downside volatility has only a limited risk,
so you need not fear it as much as you would with a naked short call position (which has an unlimited risk).

You would also choose an expiration date that is not too close, since the time value of the OTM call collapses faster
than that of the ATM call as the expiration date approaches, assuming the stock price is still near the ATM call’s strike price.
The discount on the spread derives from the decay of an option’s time value as the expiration date approaches (see theta decay chart).
If you bought just the ATM call, your debit would equal the intrinsic value (if any) of the call plus its time value (ignoring commissions).
By shorting the OTM call, you receive a credit equal to the time value.
Therefore, the time values of the two calls partially cancel each other out.

The offset is partial because time value is greatest at the ATM call strike price.
The effect is to buy the ATM call option at a discount,
which means a higher return on investment when the stock price is above the breakeven point.
The breakeven point is lower in the bull call spread as compared to a naked long call,
thanks to the credit provided by shorting the OTM call.

## Greeks

![Vertical bull call spread greeks](vbdcs_greeks-1024x576.png){.thumb}
Figure: Fig. 2, Vertical bull call spread greeks

### Delta

An option’s probable price movement in relation to the price movement of the underlying stock.
The value ranges from `0` to `1` for a long call or short put, where `0` means the option price is not affected by the stock price,
and `1` means the option prices moves penny for penny in lockstep with the underlying’s price.
A short call or long put have a delta between `0` and `-1`, reflecting that these options have values
that move in the opposite direction from those of the underlying stock.
Delta increases for ATM options as the expiration date approaches.
For a bull call spread, delta is initially positive, as the value of the spread increases when the underlying stock price rises.

### Vega

The effect of the underlying stock’s volatility on the option’s price.
Higher vega translates into higher option prices, all things being equal.
For example, a vega of `0.3` means that an option’s price will rise by 30 cents for each point increase
in the underlying stock’s implied volatility.
In a bull call spread, vega is positive for options with a short expiration period
but is less positive for options with longer expiration periods.

### Theta

The time decay of an option’s price as the expiration date approaches.
At the close of expiration day, the option’s theta is `0`.
Theta is lower for long expiration periods, which means the option loses time value more slowly
than it would for short expiration periods.
A longer expiration period increases the chance that the option will expire in the money.
Theta is negative (which means the spread loses value over time) for a bull call spread
if the underlying’s price is below the breakeven point;
Theta becomes positive (i.e., the spread’s price grows with time) when the underlying asset price rises above the breakeven point.

### Gamma

This is the rate of change of delta — the responsiveness of the position to the underlying’s price movement.
In a bull call spread, gamma is positive below the breakeven point,
which leads to delta growth when the underlying price approaches the breakeven point.
Above the breakeven point, gamma becomes negative, thereby decreasing delta.

## Dynamic illustrations

![](vbdcs_time.mp4){style="width: 100%; height: 100%;" autoplay="autoplay" loop="loop" controls="controls"}
Figure: Fig. 3, Time decay animation Describes the physics of what happens to the spread’s price as expiration approaches.

![](vbdcs_vola.mp4){style="width: 100%; height: 100%;" autoplay="autoplay" loop="loop" controls="controls"}
Figure: Fig. 4, Volatility dependency animation Describes the physics of what happens to the spread’s price when implied volatility rises or falls.

## Position example

Assume Apple (AAPL) is trading at `$120`.
Buy to open 10 AAPL March 120 calls for `$3.20`, sell to open 10 AAPL March 125 calls for `$1.40`.
Neglect commissions.

**Net debit:** `$3.20 – $1.40 = $1.80`. You pay `$1,800`.
If you expect AAPL to go up to near `$130` by expiration, you might instead sell to open 10 AAPL March `$130` calls.

**Maximum profit:** `10 x ($500 – $180) = $3,200`.

**Maximum loss:** `$1,800`.

**Breakeven point:** `$120 + $1.80 = $121.80`.

## How to manage position

Since this is a debit spread with limited risk and reward, you don’t need much management, but here’s what you can do.

### Strong rise in underlying stock price

You could buy to close the OTM call and sell to open an OTM call with the next higher strike price.
Alternatively, you could refrain from buying the higher strike call, converting the position into a long call.
Lastly, you could simply close out the spread once the stock price hits the OTM call’s strike price, since this represents maximum profit.

### Stock price not expected to rise much

You could write extra OTM calls to lower the net cost and the breakeven point.
The resulting long call ladder spread has unlimited risk.

### Stock price expected to reverse after hitting strike price of OTM call

You can convert to a bear call spread (which see) by selling to close the long call and buying
to open a new long call with a strike higher than that of the short call.
This position profits from a price decline and has limited profit, limited loss potential.

## Variation

You can put on a bull call spread using two OTM calls with different strike prices above the current stock price.
You buy the lower-strike call and sell the higher-strike one.
For example, if the stock price is `$120`, you buy the `$125` call and sell the `$130` call.
This can be extremely profitable on a percentage basis if the stock price explodes in your favor.
Of course, the probability of a total loss is much greater,
because the breakeven point lies further away from the current price of the underlying.

## Summary

The bull call spread limits your losses if the underlying stock price drops, and limits your profits if the stock price rises.
If the stock price rises but never hits the OTM call’s strike price,
your ROI will be larger than it would be from a naked long call position.
The bull call spread is also an effective way to buy options at a discount.
We’ve ignored commissions, but in the real world, you’ll pay more commissions
with the spread than you would with a naked long call position.



# Option Workshop, version 16.10.1194

In our new version, we have added several improvements by request from our users, and fixed some interface bugs, the DDE export bugs etc.
The new version can already be downloaded [from our website](http://optionworkshop.net/download) or through the update system.

:::cut:::

## Strategy templates

In the strategy templates manager window we’ve added some standard options combinations:

- Straddle: +1p, +1c,
- Strangle: +1p-1, +1c+1,
- Strangle 2: +1p-2, +1c+2,
- Strangle 3: +1p-3, +1c+3,
- Vertical bull call spread: +1c, -1c+1,
- Vertical bear call spread: -1c, +1c+1,
- Vertical bull put spread:  +1p-1, -1p,
- Vertical bear put spread:  -1p-1, +1p,
- Calls butterfly: +1c-1, -2c, +1c+1,
- Puts butterfly: +1p-1, -2p, +1p+1,
- Condor: +1p-2, -1p-1, -1c+1, +1c+2.

If you select a template you’ll see in the right part of the window the template formula for creating
a spread and the ‘preview’ of the PnL chart which is built up according to the formula.

![](standarttemplates.png){.thumb}
Figure: Standard strategy templates

Now you can include the underlying asset in the strategy templates: ‘**u**’ means underlying asset.

## DDE export

We have added the option to change the update rate of the data exported via DDE –
The **Update period** parameter is now available in the export settings window.

![](ddeupdate.png){.thumb}
Figure: Update period

You can open the export settings window by using hotkeys **Ctrl+Shift+E**.

## Instrument tree

Weekly options in the instrument tree now display the number of the week.

![](weeks1.png){.thumb}
Figure: Number of the week

## Interface control

To quickly switch between windows in Option Workshop use the hotkeys **Ctrl+Tab**.

![](activewindows.png){.thumb}
Figure: Switching between forms

## Fixed issues

We have fixed an issue with:

- Interface tabs ordering not maintained after restarting the program,
- Main window’s incorrect minimization,
- Historical chart zoom settings when a candle is updated,
- Table columns’ autosizing,
- Fills deletion while deleting a position,
- Net strategy update when adding a position,
- DDE export errors.

Also Option Desk’s column preset list was not updated properly. We have fixed this issue.



# Modelling a naked call position

## Small intro about how-tos

We often hear the rebuke that our documentation is much too dry and much too technical.
With this blog we’re going to breath in some personality into our public material.
We’ll do this by examining some concrete use examples and describing how to solve them using our software.
All posts of this kind will be registered in the [how-to](https://optionworkshop.net/blog/tags/how-to/) category,
so it will be easy to filter them.

:::cut:::

## Preconditions

Below we describe how to play with some **very basic options positions modelling**.
We assume that the user has already setup the software with at least one datasource.
We’ve created several videos describing integration with external systems, if you’re interested,
you can find them [here](http://optionworkshop.net/videos/).

## Modelling a single position

One options trading mentor had a very simple reply to the question “How to start trading options”:

> _– Just buy a call and see what will happen_

So you want to follow this advice, but without opening a real position.
Maybe even without having a real account.
It means that all you need is to create a virtual position at the current market price
and with the desired number of contracts and then monitor it as the market changes.

### Adding an account

This step is optional, because in most cases after connecting OptionWorkshop to some datasource it will pull trading accounts
and automatically add them to the list.
But if, for example, the user connected the software to IQ Feed – a pure market data source,
without execution – then it’ll be necessary to create an account.
Another reason to create a virtual (test, modelling) account is just to separate modelling options positions from real ones.

![](optionsworkshop_2016-05-03_02-42-581-150x140.png)
Figure: Add new account button above accounts list

![](optionsworkshop_2016-05-03_02-51-32-150x150.png)
Figure: Add new account dialog

To add virtual account in the **Positions** form press the cross button above the accounts list.
The form for entering a new account name appears, there we have to fill in the **Name** field as shown on the second form.
Now press Ok and see that account was added and appears in the list.

![](optionsworkshop_2016-05-03_02-59-00-150x150.png)
Figure: New Account, without strategies yet

## Strategy

![](optionsworkshop_2016-05-22_22-19-37.png)
Figure: Fig. 2, Add new strategy dialog

Now let’s add a strategy.
Press the button with a cross icon that’s above the strategies list (see Fig. 2), that will bring the form on the lift.
The **Account** field will be pre-filled out if before clicking the add strategy button you’ve selected an account in the list.
The only thing you’ll need to do is to select a base asset and type in the new strategy name.
Remember that the name must be unique within an account and base asset subportfolio.
When the form has been filled out, press **Ok**. The new strategy will be added.

![](optionsworkshop_2016-05-22_22-25-12-150x150.png)
Figure: New strategy added

In the next post we will talk about strategies in more details, for now let’s just consider that our strategy is just a subportfolio,
in which we place some positions.

## Position

There are three ways to add a modelling position into strategy and the aim of this post is to describe them all:

1. The “Add position” button;
2. Drag&drop instrument from the options desk to the positions table;
3. Drag&drop instrument from the instrument tree to the positions table.

### “Add position” button

![](optionsworkshop_2016-05-22_23-54-43.png)
Figure: “Add position” button

Above the positions table there is a button with a cross icon, showed on the picture on the left.
Clicking this button brings the “Add a new position” form and users only need to fill in the form fields,
which are the instrument, the position price and the quantity.
Remember, the quantity can be negative, that means the position will be a short position.

### “Drag&drop” from options desk

This is the most convenient way to add new positions.

![](2016-05-26_16-21-52.png)
Figure: Drag&drop option from options desk to positions table

From the options desk you can drag&drop any option into the positions table,
and this action will also open the “Add new position” dialog. Dragging the left (green) part of a row will add a call,
the right (red) – will add a put.

Note, that “Add new position” will be prefilled as much as possible: account, instrument, strategy and price
will all have predifined values when the form opens.
The price field will be prefilled with a value depending on which cell you started dragging from.
If we start dragging the “bid” cell, then the price will be taken from the bid.

### “Drag&drop” from instruments tree

![](optionsworkshop_2016-05-26_16-30-50.png)
Figure: Drag&drop instrument from instruments tree

Simply drag the instrument from the instruments tree onto the positions table. It works exactly the same as the previous two methods.

## Chart

![](optionsworkshop_2016-05-26_16-37-56.png)

Now that the position is added, we can build a risk profile and visualize the greeks.
The **Chart** button above the positions table opens a new window with all the strategy parameter graphs.

![](optionsworkshop_2016-05-26_16-43-29-150x150.png)
Figure: Call P&L and greeks chart

![](optionsworkshop_2016-05-26_16-44-20-150x150.png)
Figure: Call P&L chart

![](optionsworkshop_2016-05-26_16-44-58-150x150.png)
Figure: Call gamma chart

![](optionsworkshop_2016-05-26_16-44-42-150x150.png)
Figure: Call delta chart

![](optionsworkshop_2016-05-26_16-41-37-150x150.png)
Figure: Call P&L and greeks chart


Blog #call

Bear Call Spread

Straddle

Vertical Bull Debit Call Spread

Option Workshop, version 16.10.1194

Modelling a naked call position

Last thing