
Option Workshop, version 19.2.1808
==================================

We have released a new version of Option Workshop. The main changes are focused around the FOS (Futures Orders Stairs) feature.

:::cut:::

## Redesigned FOS

We've rewritten it from scratch. Documentation hasn't been updated yet, thus, a brief description of what's been changed is laid out below.

In the previous implementation, FOS only allowed working with generated grid, which was symmetrical around the market price of an underlying instrument. It didn't allow users to change the grid manually.

In the new version:

1. Users can generate a grid using a flexible set of parameters
2. The generated grid can be moved up or down. Thus users are able to adjust it to market
3. Users can change the price value of any node
4. Users can add and remove grid nodes manually
5. For each node on the grid, users can specify an operation with futures, which must be performed when the node is crossed by price upside down or in the opposite direction.

## Performance

Fixed UI performance problem when using custom volatility models and opening volatility skew charts.

## Telegram Bot

Several improvements on stability and data formatting.

## CQG

Fixed a rare case when the software was unable to reconnect after connection loss with CQG backend.

## Teamviewer

Updated embedded Teamviewer to the latest version. This is used for remote support.


Option Workshop, version 18.8.1744
==================================

## New features

* User parameters of volatility scew lines now can be marked as default to be used for all new charts
* Application initialization speed improved
* In the instrument tree it's now possible to see instruments, which doesn't have options
* Option desk now after some time will be automatically scrolled to an ATM strike
* Option desk now lets user to show 75 and 100 strikes
* In delta hedger it's now possible to manualy set a value inside a range to which adjust the delta
* Vertical line showing current price of an underlying asset added to the volatility scew chart
* Now it is possible to remove all contracts from market-maker with single click
* Now it is possible to scale number of contracts in positions, for all positions at once

:::cut:::

## Bug fixes

* Price range of a risk profile chart now always be saved when switching between strategies
* Delta hedger discrete mode stability improved


Option Workshop, version 18.6.1727
==================================

## Subscription rotation

The main feature we've added in this version is an ability to "rotate" market data subscriptions. The problem which we were trying to solve is the limitation on a number of instruments, for which market data you can subscribe simultaneously. In Interactive Brokers TWS this limit is very low, only 100 instruments. CQG limit is about 400, IQ Feed - 500. You buy an extension for this limits, but it is not cheap.

:::cut:::

We have implemented a logic, which split all the instruments for which you need to receive market data (for example, you've opened ten option desks) into groups and then subscribe/unsubscribe for these groups sequentially. This approach allows us to have quasi-realtime market data, which is enough if we are trading manually.

We rotate only options, subscriptions for underlying instruments are always made once and until instrument becomes unused.

In this context, we've also added a market data "freshness" indicator on to option desk feature. Take a look at the image below.

![Market data freshness indicator](market-data-freshness-indicator.png)

This indicator is two small dots in cells of the Strike column, right for puts, left for calls. Dot changes it's color from green to red, depending on how fresh a quote is.

## Delta-hedger discrete mode

Our super cool feature - delta-hedger has several regimes of work. One of them is "discrete by base asset price." Our users reported several cases when the delta-hedger was trying to hedge while underlying instrument price was in between two reference points. We've fixed this issue.


# Option Workshop, version 18.2.1657

Dear Option Workshop users, our long-awaited update will be released today. We will update the documentation shortly, but until then, please take a look at the new features described in this post.

:::cut:::

## Telegram bot

Telegram is one of the best messengers out there. It works perfectly on all platforms and allows developers to create automation bots. In our case, we have decided to create a bot which will transmit quotes for selected instruments and parameters of selected portfolios (strategies) to users’ smartphones. At first, we thought about developing our own mobile application, but finally decided to create a bot, since it provides enough to cover all our needs.

What we wanted to achieve:

1. Give users the ability to transmit quotes of selected instruments from their Option Workshop instances to their smartphones;
2. Give users the ability to transmit their strategy parameters in the same manner;
3. Give users the ability to receive notifications on their smartphones then and instrument set up price or strategy P&L breaks limits, as defined by the user.

Below, what have we done.

### Connect the Option Workshop running instance and a Telegram account

First, you have to connect your Option Workshop and Telegram accounts, running on either a smartphone or computer. To do this, open the Bot Management Window by clicking this button ![](bot-btn.png) on the control panel to the left. In the window that appears, press **Connect to telegram**:

![Connect to telegram](connect-to-telegram.png)

Then press the **Add bot to your Telegram** button; this will open a bot page in your browser. The browser will then ask for your confirmation to launch Telegram on your system and add the bot there.

After the bot is added to your Telegram contact list, you need to link Option Workshop and the bot by giving them both the same **Access code**. To get an access code, press “Request new access code”—the code will appear on the same form:

![Access code](acceess-code.png)

In Telegram, start a chat with the bot and then press the Start button. The bot will request an access code—enter the code you were given in the prior step. Now you are all set up.

### Adding instruments and strategies to be transmitted

Now you can select instruments and strategies, which Option Workshop will then transmit to the Telegram bot. To add an instrument, select **Add to watch** menu item in the context menu of any instrument. The same goes for strategies. There are a couple images below demonstrating the process.

![](add-watch-instrument.mp4){style="width: 100%; height: 100%;" autoplay="autoplay" loop="loop" controls="controls"}
Figure: Adding instrument to watch list

![](add-watch-strategy-1.mp4){style="width: 100%; height: 100%;" autoplay="autoplay" loop="loop" controls="controls"}
Figure: Adding strategy to watch list

For instruments, you can set up a price range at the exit from which, Option Workshop will send a notification to the bot.

![Setup instrument notification](watch-setup-instrument.png)
Figure: Setup instrument notifications

Similar setup for strategies:

![Setup strategy notifications](watch-setup-strategy.png)

And this is how it looks in Telegram:

![](telegram-1.png) ![](telegram-2.png)

## Implied volatility smiles

Big changes are coming in a part of software responsible for pricing. Until now, we would build an IV curve by just taking the midmarket IV (sum of bid and offer divided by two). That was working fine for actively traded options during actively traded hours. But outside the US trading session, when spreads are big or for strikes which are far from ATM strike, there could be no orders at all, this approach would fail. We can’t figure out an IV and as a result can’t calculate theoretical price and Greeks.

What we have done in this update:

1. Added the ability to build polynomial approximation of current market IV curve on central strikes.
1. Added the ability to shift IV curve with underlying instrument price move.

The model works in the following way:

1. User selects a basis – a number of central strikes at which midmarket IV’s will be used to fit the curve. Basis might be built symmetrically around ATM strike or shifted from ATM, either up or down.
1. For strikes higher than ATM call options, IV will be taken; for lower strikes – puts IV.
1. User can fit a polynom once or make program fit it each time basis changes.
1. User can choose to make program use square root from X as a function, describing tails of the smile.

![](iv-model-settings.png)
Figure: Polynomial volatility model settings

## Market-maker ergonomic

We have made some changes in our market-maker module aimed at minimizing the risk of operational errors and increasing the user’s speed and comfort when changing parameters.
Now if you hold the Ctrl button while entering a spread value or number of contracts of some other parameter, this value will be applied to all the rows in a market maker. Also, the **Alt+Enter** combination now performs the **Apply changes** button feature.

## Fixes

Several errors were also fixed, including but not limited to:

1. Rare situation when, after CQG connection is lost and restored, user might see positions which do not actually exist on the account;
1. Positions table performance was not good enough when a strategy contained too many positions;
1. In rare conditions, market-maker module could place an order whose execution might lead to a position whose size breaks the limits set up by the user.



# Option Workshop, version 17.6.1515

In this update, we’ve added several improvements:

- Changes in the **Positions manager**:

  - Copying a strategy with all fills
  - A new **Mnns** (moneyness) column that shows the option status: in the money, at the money, out of the money
  - A new **Risks** tab. Now the tab shows only the total number of underlying contracts to be settled if in the money options expire right now.
    In the next updates, we plan to add more useful information about strategy in this tab

- Changes in the **Charts** form:

  - The ability to bind the **Charts** form with the active (selected) strategy in the **Positions manager**.
    The form will show a chart for the currently selected strategy in the Position manager
  - The ability to display the **P&L** chart taking the commission for the fills into account

- In the **Option Desk**, the bid and ask cells are now highlighted if the best bid/ask price is higher/lower than the theoretical price.
- In the new version, you can add contracts to the market maker by dragging a position or a strategy into the market maker setting form.

You can read more about these and other changes in this article.

:::cut:::

## Changes in the Position Manager

### Mnns column

In the Positions table, we’ve added an **Mnns** column (option moneyness) that shows the option state:

- `I` – in the money,
- `A` – at the money,
- `O` – out of the money.

![](MNSS.png){.thumb}
Figure: Mnns column

### Risks tab

We’ve added the **Risks** tab in the Position manager.
Now the tab displays only one parameter – the total number of underlying contracts to be settled if options in the money are expired right now.
In the future, we plan to add several strategy parameters: maximum possible profit and loss,
probabilities of profit or loss, and other useful parameters.

![](risks.png){.thumb}
Figure: Risks tab

### An alternative way to copy a strategy

Prior to this update, when copying a strategy, positions were copied as fills.
For each position in the initial strategy, a position was created in the new strategy.
Under each position, there was only one fill.
The fill price was equal to the initial position opening price, and the fill size was equal to the initial position size.
At the same time, the fills that formed the initial position were not copied.

We have added the ability to copy the strategy with all fills:

- Right-click on the strategy name and select the **Copy with fills** command in the **Create copy** submenu;
- In the Position manager, a duplicate of the strategy will be created.
  Each fill (excluding the adjustment fills) will be copied to a new strategy.

![](Copy-with-fills.png){.thumb}
Figure: Two ways to copу a strategy

For the copied fills, the `Manual` type will be set. The `Exchange ID` will be replaced.

## Strategy charts

### Binding the Charts form and active strategy in the Position manager

In the new version, you can bind the strategy charts form and the active strategy.

![](Bind_1.gif){.thumb}
Figure: Binding Chart form and Position Manager

Click the **Bind** button. Now, when switching between strategies in the Position Manager, the charts will be automatically redrawn.
The price range and zoom are saved separately for each strategy.

### P&L chart taking the commission into account

We have added the ability to display the P&L chart so that it takes the commission into account.
When you click on the **Commission** button, the chart is shifted down to the size of the commission.

![](commission.png){.thumb}
Figure: Commission button

Instructions on how to set a commission are provided in the [documentation](https://optionworkshop.net/docs/analysis/fill-manager#commission).

## Option Desk

In the Option Desk, the best bid and ask prices are now highlighted, depending on the theoretical price. Cells are highlighted if:

- the best bid price is higher than the theoretical price, or
- the best ask price is lower than the theoretical price.

![](OptionDesk-1024x320.png){.thumb}
Figure: Highlighted cells

We’ve also added the number of days until the expiration of options series to the Option Desk tab name.

## Historical chart

We’ve added the instrument code to the Historical chart tab name.

## Adding contracts to the Market maker

In the new version, you can add contracts to the market maker in an additional way:
drag a position or strategy from the Position manager and drop it into the the market maker setting form.
Thus, a position contract will be created in the form.

![](MM-1024x393.png){.thumb}
Figure: Adding contracts to the Market maker

## Fixed

- The delta hedger hangs.
- Incorrect work of the delta hedger in discrete mode.
- The price of the underlying asset was not updated on the graph IV.
- The interface hangs.
- Incorrect functioning of **Ctrl + Tab** hotkeys.
- Volatility values were not imported into Option Workshop when the CSV file was opened in MS Excel.



# 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.



Option Workshop, version 17.3.1431
==================================

We prepared a major update for Option Workshop. Many new features have been added to help our users trade efficiently.

There are two new tabs in the Positions manager:

* Orders – contains orders that are linked to selected strategy.
  On this form, you can place or cancel orders, and shift orders one step up or down from the midmarket price.
* Notes – contains text comments about the selected strategy.
  You can write comments on any strategy. Notes are displayed when you hover the cursor over the strategy name.

In the new version, you can change the position’s opening price, set the commission for the exchange/underlying assets/option series/futures,
display the IV curves for several pricing models simultaneously, etc. We will discuss these and other features in this article.

:::cut:::

## Volatility skew

Now you can simultaneously display IV curves for all pricing models created for this option series. In the **Models** list,
check the checkbox in front of the interest model.

![Selecting pricing models](Skew.png){.thumb}

Markers are displayed only for the **default** model.
The default model consists of two parts – a computation model (Black-Scholes or Black) and a volatility model.
In Optin workshop the volatility values are calculated automatically.
If you’re working with several charts simultaneously, you may set different line style for each of them.

![Volatility skew settings](SkewSettings-1024x649.png){.thumb}

## Commission

In Option Workshop, we have added an ability to calculate the fill’s commission.
The commission is configured separately for each account. To do this:

1. right-click on the account;
2. select the **Set commission** command in the context menu;
3. specify the commission size for the exchange/underlying asset/futures/option series.

![Set commission](SetCommission.png){.thumb}

The total сommission for the contracts is displayed in the **Commission** column in the **Positions** table.

![Commission column](Commission.png){.thumb}

The commission for the fill is calculated by this formula: the number of contracts in the fill multiplied by the commission size for the contract.

The commission for the position is a total commission of all fills in the position.

![Positions table and Fills table](FillsPositions-1024x364.png){.thumb}

The total row shows the total commission for all positions.

## Strategy charts

In previous versions of Option Workshop, if a strategy contains options on different expiration dates,
the P&L chart is build on the expiration date of the nearest option.

Now you can select on which date to build the chart.

The drop-down list (**Expiration date**) with expiration dates of options is available
if there are options from the different series. The selected date will be used to build the chart.

![P&L chart](StrategyCharts.png){.thumb}

## Position opening price

In the new version, you can change the positions’ opening price. Click the **Set price** button, and a list with following prices will open:

* **Theo** – theoretical price;
* **Midmarket** – midmarket price, which is composed of the average of the bid/ask;
* **Best** – the price of the best codirectional order. In this case, the best bid price will be set for a long position,
  and best ask price for a short position;
* **Worst** – the price of counter orders. In this case, the best ask price will be set for a long position,
  and best bid price for a short position;
* **Last price** – the last traded price.

![Positions’ opening price](SetPrice.png){.thumb}

When you select any of the items, the appropriate instrument parameter will be taken, and the position price will be corrected.
Two adjustment fills will be created. But the position size will not be changed.

## Option desk and Spread desk

When you hover the cursor over the tab name (Option desk or Spread desk),
a tooltip with the expiration date of the options series will be shown.

![Spread desk](SpreadDesk.png){.thumb}

## Orders

In the Positions manager, we’ve added an **Orders** tab.
This tab contains orders that are linked to selected strategies.
The set of features will be similar to the Orders manager form, plus a few useful tools:

* Two buttons to shift orders: one (![](ToMidmarket.png)) to increase and decrease the bid and offer prices;
  another (![](AwayMidmarket.png)) to decrease and increase the bid and offer prices.
  Prices are updated in one minimum price step.
* Additional columns: bid and offer for the instrument, strike, instrument type, price step and theoretical price.

![Orders tab](OrdersTab-1024x403.png){.thumb}

## Accounts and strategies renaming

Now you can rename accounts and strategies by double-clicking the name of the account/strategy.
The **Rename** command is also available in a context menu.

![Strategies renaming](Rename.png){.thumb}

![Account](Account.png){.thumb}

## Adding comments to the strategy

In the new version, you can add notes/comments to the strategies.
We have added a **Notes** tab in the **Positions** manager.
Simply enter your text and click the **Save** button.

![Adding comments to the strategy](Comments.png){.thumb}

The note text is displayed when you hover the cursor over a strategy name in the **Strategies** list.

## New column in Option desk

In the Option desk, we’ve added a new column for the call and put options: Open interest.
It’s not yet available for all data sources, but will be developed in updates soon.

## Interface

For easy navigation in the **Active windows** selection window (opened by pressing **Ctrl+Tab**), forms are now grouped by type:

* Strategy charts;
* Option desks;
* Spread desks;
* Other windows.

![Active windows](Windows.png){.thumb}

To switch between windows, use the arrows on your keyboard.

## What we have fixed

* An error when stopping the Delta hedger on a schedule.
* Incorrect calculation of P&L (Money) on expired instruments.
* Zero volatility in Option desk at normal prices.
* An error while creating virtual expired stock options.
* The absence of price rounding when placing orders.
* Incorrect calculation of prices in the Total row in the Positions table.
* Creating the adjustment fills when moving positions to another strategy.
* Incorrect format of order prices in the Option desk.
* Incorrect formation of the volatility skew.
* Incorrect time of the fills received from Interactive Brokers.


# 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.



# Strangle

## Strategy name and alternative names

**Strangle**. Alternative shorter names are **Long strangle, poor-man’s straddle**.

## Main characteristics

Neutral position.
It is a combination involving an equal number of out-of-the-money (`OTM`) long puts and long calls with 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 OTM call and simultaneously buy to open one OTM put.
Both options derive from the same underlying stock.
The strike price of the put is below the current stock price by about the same amount as the call strike price
is above the security price.
For example, if the stock price is `100`, you would buy a 95-strike put and a 105-strike call.
The advantage of this combination is that it benefits from volatility, independently of the direction of stock price movement.
Both the put and the call have (potentially) unlimited upsides but limited loss exposure.  
A strangle is like a straddle, except that the put and call in a straddle have the same at-the-money strike price.
Because the strangle uses cheaper OTM options, the total premium is less than that for a straddle, all other things being equal.

:::cut:::

## Risk profile

![](strangle_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 maximum gain with some margin to show overall picture. The domain of the X axis is centered on the midpoint between the two strike prices (i.e., the average of the put and call strike prices).

**Maximum profit**
: If the stock price rises above the call’s strike, 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 strangle (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 strangle.
(Technically, profit potential on the put leg is limited to the strike price of the put 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 closes between the call and put strikes.

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

**Key points**
: On a profit/loss chart where the X axis is a base asset price and the Y axis is profit/loss,
the value of the combination is a minimum between the put strike price and the call strike price.
The two strike prices form the base of a truncated V-shaped curve, that is,
two diagonal lines with opposite slopes that rise from the endpoints of the line connecting the put
and call strike prices.
The left leg begins at a point with (X,Y) coordinates of (put strike price, stock price minus strangle premium).
The right leg begins at a point with (X,Y) coordinates of (call strike price, stock price minus strangle premium).
The maximum loss, at any point between the two strike prices, is the strangle premium.
The left (put) leg rises as the stock price falls and is bounded by the y-axis.
The right (call) leg rises without limit as the stock price rises.
The left and right legs cross the X axis at the breakeven points described above.

## Preconditions to open this combination

You would put on a strangle in the hopes that the underlying stock will quickly break out
above the upper breakeven point or break down below the lower breakeven point.
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 prices (see the vega chart).
You don’t need an opinion on price direction to profit from a strangle, as long as the stock price moves a sufficient amount.
Some traders put on strangles just ahead of a corporate announcement, jury verdict or earnings announcement,
in the hopes the news will move the stock price.
Your biggest fear is that the price of the underlying stock will not move
into the money enough (for either the put or the call) to recoup all your premium.

## Greeks

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

### Delta

Delta is an option’s probable price movement in relation to the price movement of the underlying stock.
The value ranges from `-1` to `1`:

-   `-1` to `0` for a long put;
-   `0` to `1` for a long call;

where `0` means the option (and thus the spread) 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.
At the average strike price of a strangle, the deltas of the put and of the call cancel each other out,
which is why the strangle is delta neutral.
There is a wrinkle when the stock price does not exactly match the average strike price.
If the stock price is above the average strike price, the call 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 stock price is below the average strike price.
This is only a concern if you sell to close the strangle before expiration;
If you hold till expiration, the effect of a slightly non-neutral delta evaporates.

### Vega

Vega is the effect of the underlying stock’s volatility on the option’s price.
For a strangle, 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 strangle during periods of high implied volatility can be disadvantageous,
because a volatility crunch will shrink vega and collapse the time value of the put and call premiums.
Vega has a maximum value between strikes.

### Theta

Theta is 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 strangle is negative (which means the combination loses value over time)
because the options lose value due to time decay.
Time decay speed is maximum when the underlying’s price is between strikes.

### Gamma

Gamma is the rate of change of delta – the responsiveness of the position to the underlying’s price movement.
In a strangle, gamma is positive, which means delta will increase in the direction of the stock price movement.
On an upward stock move, a positive gamma dictates that the delta of the strangle becomes increasingly positive,
while on a downward stock move, the strangle’s delta becomes increasingly negative.
You can thus profit from a move in either direction with a strangle,
as long as the stock moves far enough into the money for either the put or the call.

## Dynamic illustrations

![](strangle_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 combination’s price as expiration approaches.

![](strangle_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 combination’s price when implied volatility rises or falls.

## Position example

Assume its mid-January and United Technologies (UTX) is trading at `$110.00`.
Buy to open 10 UTX March 03 114-strike calls for `$1.12` each, buy to open 10 UTX March 03 106-strike puts for `$1.23 each`.
Neglect commissions.

-   **Net Debit**: `$1.12 + $1.23 = $2.35`. You pay `$2,350`.
-   **Maximum profit**: `10 x (|ITM option strike price – stock price| – $235)`
-   **Maximum loss**: `$2,350`.
-   **Breakeven point 1**: `$114 + $2.35 = $116.35`.
-   **Breakeven point 2**: `$106 – $2.35 = $103.65`.

## How to manage position

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

### Strong move in underlying stock price

1. You can sell to close the leg that gained value due to the move in the underlying stock price.
   If time decay hasn’t devalued options significantly, the option in the favored leg has become profitable.
   Alternatively, you can sell the whole spread,
2. You can sell to open an option one to two strikes further in the money than the option that gained value.
   Doing this converts one side of the strangle into a vertical spread, thus compensating you
   for the premium you paid on the strangle, possibly creating a positive risk profile.
3. If the underlying stock moves beyond one of the breakeven points, you can sell
   to close the out-of-the-money (OTM) option to recoup a little of the premium.

### 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 choice.

## Variations

If you wish to risk more money in order to reduce the distance between the two breakeven points,
you could buy a straddle instead of a strangle.

If you have a mildly bullish inclination, you could buy more calls than puts.
If you have a mildly bearish inclination, you could buy more put than calls.
You’ll make more profit with either variation than you would with a classic strangle
if you correctly guess the direction of stock movement, but you’ll profit less (or lose more) if you guess incorrectly.

## Summary

A strangle limits your losses to some amount between zero and the combination’s 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 or cut your loss on a strangle even if the stock price doesn’t move beyond a breakeven point.
This is possible only when the implied volatility of the underlying stock jumps soon after purchase
and thereby expands option premiums (through an increase in time value) above the amount you paid.
You could then sell the strangle for a profit, albeit probably a small profit.

A strangle costs less than a straddle, so that less money is at risk per combination.
However, the strangle has a larger distance between breakeven points, so that you need more stock price movement to make a profit.
The strangle expires without value if the ending stock price is between the two strike prices, inclusively.
In a straddle, the expiration value is more than zero unless the ending stock price is equal to the strike price.



# 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.



# Table settings

In Option Workshop most of the data is displayed in tabular form.
For convenience the tables can be customized to your requirements.
We’ve made two videos that demonstrate how to do it:

1. The first video is about selecting which columns to display, specifying width and sorting order.
2. The second video is about how to create presets, which are used to quickly switch between different table settings.

:::cut:::

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

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



# Strategy templates

With this post we are going to open a category of publications, where we write about our plans to implement new features into Option Workshop.
We hope these posts will turn into a dialog with users, so everyone is welcome to comment about these post here at our blog,
in our [google plus](https://google.com/+OptionworkshopNetApp) pages
or at the [support portal/forum](http://help.optionworkshop.net/support/discussions/5000040921).

## The need

There are different approaches to options trading.
One of them is trading standard options combinations, like butterflies, vertical spreads and so on.
Beginners can simply buy/sell one of these combinations with the hope that the price of the underlying will be within a profitable range.
Advanced traders will manage the position over its lifetime. But both beginners and advanced traders need
to find a convenient way to observe and discover the best opportunities to open any position.

Traders need a fast way to understand all of the following factors: the price, the greeks, the maximum profit and the maximum risk
if they opens a spread at a particular strike.

Another need is the ability to create custom templates, for spread trades that are regularly put on.
For example, some traders like to trade ‘standard’ butterflies that only have a one strike distance or ‘step’ between the leg and the center.
Others trade a ‘wider’ butterfly with a 2 or 3 strike step between the wing and the core.
With a custom template, it will be possible to specify the difference between the step, be it a 1, 2 or 5+ strike distance.
Additionally, because of it’s flexibility, you could build the butterfly out of calls or puts, or any combination of both.

:::cut:::

## Syntax

We plan to create a simple syntax for describing combinations in relative form,
i.e. without binding it to a concrete underlying, series or strike.

Let’s start with an example of a combination description in a format which we’ll consider now:

```
1c-1,-2c,1c+1
```

This is a description of a simple long butterfly made up of call options.
Let’s see in detail how this syntax works:

1. The template description row consists of several parts split up by a comma.
2. The first part is `1c-1`.
   It by-turn consists of `1c` and `-1`.
   `1c` means "one bought call option", `-1` means "at strike which lies one step down to the **central strike**".
3. The second part is `-2c`.
   It doesn’t have a second fraction like `-1` in first part.
   It means that it describes the central strike.
   So `-2c` means "two sold call options at the central strike".
4. The third part is `1c+1`, meaning "one long call option at a strike one step higher than the central strike".

**Central strike** is a term in the description above.
It is the strike that the spread is built up around.
If we build the spread above at a central strike of 100 (with the step distance between the strikes being 5), then:

- `-2c` – is two short calls at a strike of 100;
- `1c-1` is one long call at a strike of 95;
- `1c+2` is one long call at a strike of 105.

If we build it at strike 110, then all strike in the list above must be increased by 10.

Here are a few more examples:

- `1c, 1p` – a straddle;
- `1c+1, 1p-1` – a strangle with a two strike width;
- `1c, -1c+1` – a vertical bull spread.

## Templates editor interface prototype

![](templates-manager-form.png)
Figure: Templates editor interface prototype

The layout for a template editor seems to be very simple.
See the image above. It will have the list of default and user defined templates and two interface elements for editing:

- A text field for the template name;
- A text field for the template formula.

For clarity it will be useful to add a small chart, that will show a qualitative risk profile at expiration (payoff function).

## Use of templates

### Quotes and other parameters

![](spread-desk.png)
Figure: Spread desk

There is a class of traders who think in terms of prices of option spreads.
For example, if someone trades butterflies regularly, then it’s natural for him to think of the butterflies price.
IE: “how much is the bid and the offer for a butterfly trading at the 100 strike?”.
Or, what is the current delta/gamma/vega value for this spread and so on.

For these traders it’ll be convenient to have a table, which will show all the parameters of a particular option spread
with all the different strikes (all possible combinations within an options series).
The image above illustrates a prototype of this.

### Quick strategy creation from template

Simple and obvious functionality. If a trader wants to model a position in an options spread,
at the moment they need to manually add a position in each leg.
It is very flexible and gives the ability to model absolutely any options spread, but it’s time consuming in a situation,
where the user needs to model something standard.

What we want to do is to give users the ability to add their butterflies/condors/strangles into a modelling account or strategy in a single click.
In the context menu of a row in the options desk the software will show the item **Templates**
with subitems titled by existed templates names. After the user clicks on an item, the following form will appear:

![](create-strategy-form.png)
Figure: Create strategy form template

The form will require a user to choose an account, where he wants to add a modelling position,
a strategy name (new or existing) and a multiplier – a value at which a number of legs in each leg of the template must be scaled.

What do you think? Tell us here in the comments or anywhere on our social networks pages.



Option Workshop, version 16.6.935
=================================

## Get started wizard

Until now, when users first launched the main window they were greeted with a platform that was almost empty – there were no tables,
no charts and so on.
Because of this, there wasn’t any beginning point where a user could catch on and start to explore the software’s functionality.

Now, upon first launch Option Workshop will show the Get started wizard, which helps user with their initial setup.

## Positions

We’ve added a pop-up tooltip for the position row in the positions table, which appears when the mouse pointer hovers over a row.
The tooltip contains all the information from the table columns and some additional parameters.

The P&L(M) column now works for any instrument that is sending marketdata from Interactive Brokers or IQ Feed.

:::cut:::

The mechanism of moving positions between strategies has been changed.
Now, if you move a position to another strategy, all fills under the position will move into the destination strategy,
and the source strategy will be emptied.

## What-if Scenarios

Now users can customize their what-if scenarios line’s width and style, as well as it’s color.

## Status bar

The program now shows the current time in the status bar at the bottom of the main window.

## Pricing

When calculating an option’s theoretical prices and greeks we now try to take time up until
the end of the trading session of the last trading day for the instrument.
This information about trading hours is not always provided by our datasources, in these cases we assume that the trading session ends at midnight.

## Default prices for new position

When adding a new modelling position by drugging an instrument from the options desk,
our software now takes a default price to prefill the form from a cell, where the user started drugging.
In our previous version, the default price was always the last traded price.

## Fills routing

We have added a button for calling the form of fills routing setting onto the toolbar above the strategies list.

## Charts rendering regimes

Some users launch our software on remote virtual machines.
In these scenarios the DirectX charts rendering mechanism was not always working correct.
We added a setting which allows us to make the software use software rendering instead of DirectX.

Additionally, we have fixed several bugs.


# Implied volatility calculation

Today we’re going to talk about how we calculate volatility in Option Workshop, and what our plans are to improve this part of the functionality.

Option Workshop [is integrated with several data sources](http://optionworkshop.net/docs/page/integration),
which provides market data for options and their underlyings.
They all are different, with a different API, different architecture, but they all have one thing
in common – they don’t provide current implied volatility value for options.
This means we have to figure it out on our side, inside the Option Workshop pricing mechanism.

:::cut:::

## Available data

We have several option contract parameters which we can utilize to figure out implied volatility (IV) These are:

- Last trade price or settlement;
- Best bid price;
- Best offer price.

Also we utilize the last price of an underlying contract or asset.

## The problem

First, let’s formulate a basic approach and then consider its limitations and ways to handle them.

The IV of an option contract can be calculated as the IV of its midmarket price – a half of a sum of the best bid and best offer prices.

The approach is clear and easy. But it works only if the following conditions are true:

- There are both bid and offer for an option;
- The spread between the bid and the offer isn’t too wide;
- A midmarket price is higher than an option’s intrinsic value.

These conditions seem simple, but actually they are far away from always to true.
If we take a look at an option, which is deep in or out of the money, then any of these condition might be violated.

![](6xzncti.png)
Figure: RUT Option desk

![](u2vnytp.png)
Figure: Calculation in Excel

Let’s consider a Russell 2000 July series.
The current futures price is 1159.66, the best orders for the 960 (deep in the money) call are 200.5/197.4.
The midmarket price is 198.95, while the intrinsic value of a 960 call is 199.66,
that means the “market” is below the option payoff function at expiration.

![](intrisic-value-150x150.png)
Figure: Option theoretical price

![](rect10485-150x150.png)

Look at the figure titled **Option price, payoff function and best orders**.
The orange line is the call option’s intrinsic value.
The black line – it’s current theoretical price.
The red and green dots are the best ask and bid, and the blue one is half the sum of the red and green – the midmarket price.
Normally, for actively traded options that are near the money, all dots must be above the orange line
and in some relation with black line: ideally, if the model and the market fit each other,
then the black line will be between the red and green dots.

![](6pqki2q-150x150.png)
Figure: Possible spreads

Figure Possible spreads illustrates six scenarios of how the best orders may appear in an order book.

Case 1 is clear and simple. The spread between orders is tight and its center can be treated as a fair market price.
You can buy and sell with a small price difference, so it means that the fair price is somewhere in between.

Cases 2, 3 and 4 are the same in common.
Spreads between the bid and offer are too wide and despite the fact that the market price is somewhere
within this spread, it’s impossible to figure out its value.
In other words we can’t use the half sum of the best orders as a representative value of the price.

Cases 5 and 6 are the worst. Because they are lacking either a bid or an offer, there can be no midmarket at all.

## How we handle it now

Right now we do it not in a way in which we want and going to do soon.
At the moment we only apply some empirics to pull off an adequate value from the prices we have.

If the spread is too wide or doesn’t exist we take the last price or settlements, if the datasource provides it.

If the spread is tight but its mean is below the option’s intrinsic value, then we take the last and add 0.1% to it.

This all is a compromise and we’re currently working on making something completely different.

## What users will get soon

![](ye6qrgv.png)
Figure: IV approximation

We are working now on developing a logic of IV curve approximation.
It means that based on the strikes, which are liquid enough and where the spreads are tight, we will build up a curve for the whole strikes grid.
It’s not an easy thing, there are a lot of assumptions and mathematics.
But when this functionality will be rolled out, users will get good enough default volatility curves
and the ability to manipulate it with model parameters.

We hope you will enjoy it.



# 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



Managing accounts
=================

New short video about managing real and virtual accounts.

![](https://www.youtube.com/watch?v=14clydxob-o)

:::cut:::


Integration with CQG Continuum
==============================

Watch one of our recent videos, this time it’s about setting up a connection with [CQG Continuum](http://www.continuumtradingsolutions.com/).

![](https://www.youtube.com/watch?v=cXi8TYKR6s0)

:::cut:::


Release 16.4.812
================

A lot of things have been done in this update!
The new version can already be downloaded [from the website](http://optionworkshop.net/download) or through the update system.

:::cut:::

## New charting

We’ve replaced the library which we were using for charting.
The previous version had serious performance limitations and we were unable to implement some of the features that we wanted.
With the new charting system, we’ll now be able to add these additional features in.

At the moment, users have the same charting functionality, but it is now more efficient, faster and more accurate.
Let’s take a look at a couple of examples:

![](1oqrbpv1-150x150.png)]
![](optionsworkshop_2016-04-15_14-35-28-150x150.png)
![](optionsworkshop_2016-04-15_14-36-10-150x150.png)

We’ve revamped the way that users can manipulate charts.
It hasn’t yet been described in the documentation, but it’s important, so as of this version, the charting manipulation techniques are as follows:

* **Mouse wheel** – move the chart horizontally
* **Ctrl + mouse wheel** – zoom in & out
* **Shift + mouse wheel** – move the chart vertically
* **Right mouse button** – zoom into the selected region
* **Left mouse double click** – reset to 100% view.

Also now we save the **Price range** settings between program launches.
Before, users had complained that it was cumbersome to restore the price range every time.

There are now ten times as many nodes in the grid which is used to build the chart, so they are now 10 times as precise.

## TeamViewer as a remote support system

Before we used Ammyy Admin – it was a nice piece of software, but unfortunately most antiviruses assumed that it was dangerous.
From the perspective of view of an average user, that meant that our software was dangerous, since their executable was inside our distributive.

![OptionsWorkshop_2016-04-15_14-42-27](optionsworkshop_2016-04-15_14-42-27.png)

Now, if you need our support team to help you directly through your computer, press the button in the top right corner.
It will launch the **TeamViewer quick support** executable and our agent will be able to see your monitor (following approval).

## CQG demo generation

Now user can generate a CQG Continuum demo login directly through the software, without asking our support team.
This will decrease the time barrier needed to get new users experiencing our software with live data.

## New columns in the positions table

* **Last price** – the last traded price of the instrument
* **P&L (M)** – profit/loss as shown in currency, rather than in the contracts’ quote points
* **Bid/Offer** – for individual positions these columns show the best prices for corresponding contracts.
  For a summary row it shows the bid and offer for the whole strategy.

## Options desks

* New column – **Last price**
* Reusing last used columns settings when opening new desk
* [Open option desk](http://i.imgur.com/PhDlEir.png) menu item in a context menu for instrument and position

## Instruments tree

The format for the futures codes has now been changed.


Video about general interface conception
========================================

Brief description of how to manipulate windows/tabs/dialogs. Nothing new it terms of technology, but often users don’t realize what they can do, how they can setup their layouts.

![](https://www.youtube.com/watch?v=ZKyn-x3MQRg)

:::cut:::


# How to read P&L Charts (part 1)

The question considered in this article might seem too obvious, and one might say that there is nothing to discuss.
But our user support experience tells us that often people who are entirely new in options spent excessive time
on trying to figure out options payoff profiles.
Having a well-developed skill of reading options risk profiles (alternative terms are P&L profiles, payoff function profiles) is essential to successful options trading.

For sure, sooner or later everyone will understand all the details, but we think that with this article we may accelerate this process.

:::cut:::

## P&L of a position in a linear asset. Numbers.

First, we assume stocks, bonds, indexes, commodities, ETFs and even futures are all linear assets.
They all (except futures) have their “own price,” which doesn’t directly (formally) depend on any other asset.
Futures price depends on its underlying asset price in a linear way, thus we also assume futures as a linear instrument.

Assume you have $100 in cash.
You then decide to buy a stock with a current price of $100.
Therefore, your portfolio will consist of 1 share, and you will be glued to computer/smartphone monitoring the price of the stock.
What you are doing is simple and straightforward.
You just observe the price, and since you have only one share, you know that the value of your portfolio entirely coincides with the stock price.
Then you simply compare the current value of the portfolio with your initial investment ($100) to calculate your P&L.

## Putting the numbers on a chart

Now let’s put the example above on a chart. Let’s take a look at figure 1.
The x-axis is the per share price. The y-axis denotes our portfolio P&L
The chart we are going to build shows the relationship between the P&L and the stock price.

![](fig1.png){.thumb}
Figure: Fig. 1, P&L of 1$ price movement up and down

The blue point corresponds to the very moment when we’ve just bought the share.
Price at that moment is $100, and therefore the P&L is zero.

If the price moves from $100 to $101, then our portfolio will be worth $1 more than the initial cash amount; thus, the P&L is $1.
The green dot on figure 1 corresponds to this scenario.
Its coordinates on the plot are $(x;y) = (101;1)$.

On the other hand, if the price goes down to $99, then the P&L will be -$1; the red dot on the figure corresponds to this scenario,
its coordinates are $(99;-1)$.

Similarly, with a bigger price move of let’s say, $2 instead of $1, we can see that On figure 2,
the stock price changes to $102 (green dot) or $98 (red dot).

![](fig2.png){.thumb}
Figure: Fig. 2, P&L of 2$ price movement up and down

Moving onto figure 3, we see that all the points are lying on a straight line.
No matter how much the share price changes, the P&L points on the chart will always be lying on this line.

![](fig3.png){.thumb}
Figure: Fig. 3, All dots are lying on a single line

This means that P&L has a linear relationship with the price.
In teenager math form, this would be $y = Qx$, where $y$ is the P&L of the portfolio, $x$ is the stock price change, $Q$ is the number of shares

The P&L of the portfolio is the number of shares multiplied by the P&L of a single share. Therefore, we can substitute $p - p_{0}$ for $x$,
where $p_{0}$ is the purchase price (for a long position) and $p$ is the current stock price.
We can now rewrite the formula as:

$y = Qx = Q (p - p_{0})$ **(1)**

This equation describes the direct dependence of the portfolio P&L on the share price.

What if we own 2, 3, etc. shares?
The $Q$ in the formula above will be $Q = 2$ or $ 3 $ so $y = 2(p - p_{0}), y = 3(p - p_{0})$ and so on.

On figure 4, we’ve added the line corresponding to a portfolio of 2 shares.
Note the angles between the P&L lines and the x-axis.
The more shares in the portfolio, the bigger angle is, and the faster you earn or lose money.
For 1 share, the portfolio P&L angle is 45 degrees, while for two shares, the angle is 63 degrees.

![](fig4.png){.thumb}
Figure: Fig. 4, Different angles for different position sizes (number of shares in portfolio)

## Changing the open price

In the example above, the stock was bought at $100.
What would the chart look like if the position was purchased at $99?
How do we redraw the P&L line? The line will be the same as before, just shifted to the left by 1, as shown in figure 5.

![](fig5.png){.thumb}
Figure: Fig. 5, Different open prices

## Closing the position

What if the stock price rose to $101 and the holder decided to sell it and close position? What will our chart look like then?

We can think of selling the position as a separate short position and draw them both on the chart (figure 6).
When you buy and sell a security intraday, your broker actually keeps both positions separate.
In effect, you own both the original long and the offsetting short – even though you only see cash.
Only after the trades are settled and cleared, are these positions will be collapsed on your broker’s books.

![](fig6.png){.thumb}
Figure: Fig. 6, Short position

For a short position, the $Q$ in our equation (1) is negative, $Q = -1$.
Thus, the P&L for a short position is $y = -1(p - p_{0})$ and its chart is shown in figure 7.
Since this is a short position, $p_{0}$ represents the sold price and $p$ still represents current price.

The total P&L of the portfolio, green line, is the sum of the red and blue dashed lines on the chart.
Literally we need to sum red and blue lines at each point.
The green line is, therefore, a constant, regardless of how the price changes going forward as the sum is always 1.
The position is closed and we have a $1 profit in cash.

![](fig7.png){.thumb}
Figure: Fig. 7, Total P&L of closed position

The beauty and usefulness of P&L charts are that you can quickly estimate your P&L no matter where price is going.
You see the whole picture in one chart.

Examples considered in this article are simple, but using them, we’ve explained the basic principles of building P&L charts.
Understanding these concepts will be essential when we explain more advanced options concepts in future articles.



# 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.



Development plan of Option Workshop in October/November
=======================================================

After the release we have received some good suggestions for program improvement.
Thank you for your response.
Thus, the development plan of Option Workshop in October/November:

1. Show the open interest volume in the Option Desk.
2. Display the theoretical price in the Order book.
3. Add the ability to change the option type of the modeled position.
4. Add standard strategy templates.
5. Add the ability to include an underlying asset to the strategies templates.
6. Add the option to change the update rate of the data exported via DDE.
7. Improve the volatility charts.

:::cut:::

Blog #main-site

Table settings

Strategy templates

Option Workshop, version 16.6.935

Implied volatility calculation

Modelling a naked call position

Managing accounts

Integration with CQG Continuum

Release 16.4.812

Video about general interface conception

Last thing