Projection Tool



The Option Analytix Projection tool is designed to allow the option trader to quickly project potential profits and losses of option trades based on changes to the underlying stocks price and the volatility of individual options in the trade.  In addition to projecting the dollar amount of profit and loss the trader can also project changes in the various Greek values as the price and volatility of the underlying changes over time until expiration. 


The Projection Tool is unique in the fact that options traders typically have to rely on risk graphs which show static price and time values whereas the Projection Tool allows the trader to model actual market conditions as prices and volatility move toward expiration.  This allows the trader to see the position’s profitability and Greek values from beginning to end unlike a standard risk graph where a trader would see the profit and loss of their position on one day of the trade.



Open the Projection Tool


The Projection Tool can be accessed by left clicking on the Project button from the toolbar located on the left side of the Option Analytix screen or by left clicking on FILE, NEW, and PROJECTION.  In addition the user can press CNTRL – J on the keyboard to open the Projection Tool Window.










Projection Tool Layout and Overview


The Projection Tool has 4 panes which all have separate functions but work together to identify the various outputs such as Greek values or profit and loss of your options position.



Pane # 1: Position Input and Summary


The first pane of the Projection Tool is the position setup area at the top of the window.  This area allows the trader to select a stock symbol to begin building the projection.  The last price of the stock as well as summary of Historical and Implied Volatility is provided as a quick reference.  Also on the left of the pane is a position summary showing the option spread or position that is being displayed in the Projection Tool along with the trade debit or credit, breakeven prices and max profit and loss for the trade.

The trader can build an options position with up to four option legs and also the ability to add a stock leg for trades such as covered calls.  In addition, the user can select from over 30 pre-built spread templates in which the software will automatically build the spread with the proper option and stock legs required to complete the spread.  From here the user can manipulate the pre-selected option and stock legs to their individual preferences based on strike or expiration.  This section of the Projection Tool also displays the current Bid, Ask, and real time Greek values of the options involved in the spread. Once the user selects the spread or option leg to simulate the lower three portions of the Projection Tool will populate, these lower panes work together to help the trader simulate the trade until expiration. 


Pane # 2: Option / Spread Value


As the trader makes additional changes to market conditions (Price and Volatility) the Option / Spread Value pane will recalculate the profit and loss for the position based on the changes the user inputs.  As the user moves the cursor they can see how the position changes value over time as the position gets closer to expiration. If the position is profitable the area chart in the top pane will be shaded green and the dollar amount of the gain is presented in the right chart axis, if the position is losing the amount of loss will also be reflected in the chart axis and the area chart will be displayed as red moving below 0.  The left shaded portion of this pane represents a historical look at the value of the selected option or spread based on the history of price movements of the underlying issue.


Pane # 3: Underlying


The pane central to the Projection Tool is the middle pane the, Projected Underlying section.  From this pane the trader can simulate market conditions in a chart like mode that matches what they feel the market will do until the time the chosen option or option spread expires.  As the price of the underlying stock is adjusted the Option / Spread Value pane will adjust to reflect these changes and show the updated profit and loss or the value of the option Greek which was selected to display.   To help illustrate potential price movements a probability envelope based on a one standard deviation move is shown on the underlying pane to help guide the trader to make realistic price projections.


Pane # 4: Projected Volatility


In the Projected Volatility pane the user can simulate changes in volatility and how it will affect the positions overall profit and loss.  This is unique in that normally a trader can impute this on a risk graph and see a static view of a single date.  In real trading however, both price and volatility do not typically move at great intervals all at once, a risk graph can a 10% move in volatility in 30 days but cannot illustrate properly how the positions profit and loss will move gradually during this 30 day run up.  Often times in trading the position may reach maximum profits during this run up and it’s in the best interest of the trader to take profits early before that 30 day period.  The standard risk graph cannot show this as it’s a static display of price and volatility on one single date.  Also, the Projection Tool allows the user to independently adjust legs separately in multi leg option trades.


Projection Tool Usage


Position Input and Summary


The trader begins the process of using the projection tool by entering in the stock symbol in the Symbol Field in the upper left hand corner of the Projection Window. 




A history of symbols can be accessed by left clicking on the drop down menu to the right of the symbol field.



If you do not know the symbol the lookup window can be accessed by left clicking on the magnifying glass and using the Symbol Search Feature. 




In this example the company name Chipotle is entered and once the search button is pressed the symbol is found.  Left click on the Symbol and press OK.

Once the symbol is chosen the trader than selects the options position by either manually entering in the individual stock or options legs or choosing from one of the pre-built spread templates and having the software automatically build a spread.  To access the list of pre-built spreads left click on the Spread Templates button in the upper left hand corner of Pane #1. In this case we have chosen a prebuilt template for a Long Iron Condor, once selected the software will automatically build a spread for the selected spread type.



A quick breakdown of spread cost, breakeven prices, and max profit and loss is displayed in the position summary section of Pane #1.



If the trader wishes to adjust the various legs these can be adjusted in the position tab in the upper section (Pane #1) of the projection tool. 



The position direction can be adjusted by left clicking on the Buy or Sell dropdown menu and choosing the desired side.  In this case since we are using the prebuilt template the position sides are automatically chosen.


 In addition the trade size can be adjusted by manually entering in a new quantity or left clicking on the up and down arrows to the left of the quantity field.



If the trader wishes to choose a different expiration month the drop down menu will display all available option expirations.  By changing the first expiration in a multi leg spread the software will automatically adjust all legs to the new expiration.



To change the default strike price the user can left click on the dropdown menus under the Strike column.  Available strikes for the chosen expiration are showed in bold type.  Strikes that are unavailable for the chosen expiration are greyed out.  When a strike price that is not available for the chosen expiration is chosen the software will display a message alerting the user which expirations are available for the chosen strike price.










When using a pre-built template the software automatically selects which legs of the trade should be calls or puts.  If the trader builds a spread manually or prefers to adjust the prebuilt spread to another spread type the C/P column allows the changing of the legs to Calls or Puts.



The Projection tool chooses the midpoint between the bid and ask for the default price to calculate the position changes from.  In addition, the trader can choose to build the trade either on the Bid, Ask,

Last, or a custom price which is identified by choosing Filled. 





The user can also manually enter in a price based on a position they already own by typing in a price in the Price column, once a new price is entered the projection tool will change the drop down to Filled to simulate the price the trader bought or sold the underlying position at.



Once any changes to the legs are made the user selects either Apply to apply the changes or Cancel to erase them.



The projection tool shows the current prices and Greek values as well as probability ITM and Breakeven for all options contracts selected




Projected Spread Value


The first Projected Spread Value Pane shows the profit and loss for position until expiration based on the changes in the underlying.  As you move the cursor the projected profit or loss of the trade lines up with the changes in the underlying in the Projected Underlying pane as well as the changes to volatility simulated in the Projected Volatility pane.  If the position is profitable the area is shaded green if it’s losing the area will be shaded red, the dollar amount of the gain or loss is displayed in the axis to the right of the pane.

The pane is split into two sections, on the left is the history which is based on the underlying’s history of price and volatility.  The right side of the pane is the projected area where the profit and loss are projected to be based on the user selected changes to price and volatility.



In addition to profit and loss the trader can choose to display the projected changes in Greek values on the option trade by right clicking in the pane and choosing the desired Greek Value to display.  The Projection Tool can display Delta, Gamma, Theta, Vega, and Rho by selecting them in the right click menu.




A Data Window can be added to the pane from the right click menu to see the numeric value of changes made to the lower panes as well as a snapshot of current profit and loss or selected Greek value as the changes in underlying price and volatility are made.



In this example The Projected Spread Value has been changed to display Delta.  As changes to the underlying price and volatility occur the projection tool will display the positions changing Delta values here we see how a drop in the price of the underlying will effect the overall positions Delta.   In addition to Delta the Projection Tool can also display Gamma, Theta, Vega, and Rho by selecting the from the right click menu.




Projected Underlying Pane


The Projected Underlying pane displays a price chart showing a history of the underlying symbol of the options position.   The left hand shaded area is the historical price and the darker right side of the pane is the area where future price and time can be adjusted based on the traders predictions.  The prediction area of the pane has a solid line representing the price and date of the options position until the expiration.  The purple cone is a probability cone representing a one standard deviation price move based on the underlying’s 45 day historical volatility; this helps the trader keep their price projections in a realistic range.




The various chart display options for the Projected Underlying pane can be accessed by moving the cursor into the pane and right clicking.  Here the pane can be set to display the chart in Bars, Candlesticks, Line, or Area based charts.



To predict a price movement in the future the user moves the cursor to the selected date with the vertical cursor as the cursor is being moved a square appears on the projection line.  Once the correct date is aligned on the cursor hold the left mouse button down and move the projection line to the predicted price. 



In this example a move to the chosen price level will put the position in a loss.  As the price decreases towards expiration the position will move back into profits as indicated in the first pane.



Multiple price projections can be made by lining up the vertical crosshair to the next date you wish to adjust price for.  In this example we have moved the price on 07/14/14 to a lower value.  As a result of this move the position is showing a loss on that date.  As the price moves higher towards the expiration you will see the position returns to profits as illustrated in the first pane.



In addition to dragging the price to a new level by left clicking you can also simply double clicking anywhere on the projection line to access the manual entry menu.  Here you can enter in an exact price and you anticipate the market moving to.



You can also choose a specific date by left clicking on the date dropdown menu.  This will open up a calendar and you can select the date for your price projection by left clicking on the calendar date.  To select a different month the user left clicks on the forward and backward arrows adjacent to the month and year at the top of the calendar. 



In this case the user has selected a price of 608.25 on July 1, 2014.  Once the date is selected clicking OK will place the projection, Cancel will delete the changes.



To reset the changes made to the prediction line the user can right click in the Projected Underlying tab and choose Reset Projection Line; this will return the line back to a default flat line.



The Probability Envelope can be adjusted to a previous date by moving the cursor over the edge of the Envelope and holding down the left mouse button.  This will place the squares along the edges of the envelope and allow the user to drag it to a previous date on the price chart.  This feature is helpful if a trader is modeling a position they entered into on a previous date so they can see the projected one standard deviation price move from that point.



The Probability Envelope can be removed from view by right clicking on the Projected Underlying pane and unchecking Show Probability Envelope.



Projected Volatility


The third pane in the Projection Tool is the Projected Volatility pane.  This pane displays the DT Volatility Range study which illustrates the history of the underlying symbols volatility over history.  By moving the vertical crosshair over the chart the user can see the symbols volatility for the selected dates in the past.  On the right hand side if the pane this area allows the trader to project changes in volatility and as a result how the change will affect the positions profit or loss over time.


The DT Volatility Study shows a selected volatility, in this case the 90 Day CIV Mean, in a line graph.  The shaded area of the study represents the highest and lowest volatility values over the previous 90 calendar days.  The orange line at the top is the upper 80% of the volatility range for that shaded area and the gold lower band is the lower 20% of that range.


By default the DT Volatility Study displays volatility based on the 90 Day CIV Mean (Continuous Implied Volatility of both calls and puts averaged).  The user can change this setting by right clicking in the Projected Volatility pane and choosing a new value based on preselected Historical or Continuous Implied Volatility.


The user can also select to display the volatility of the individual option legs seperatly by choosing Leg IV’s.  In this case since the position includes four legs you will see a history of the implied volatility for each leg of the position.  The colors of the individual legs are represented by the color blocks to the left of the option selections on the top of the projection tool window.


To see how a change in volatility will effect the profit and loss in the future simply move the cursor to the desired date where you anticipate volatiltiy changing and hold down the left mouse button.  Drag the volatlity line to the desired change and release the left mouse button.  The axis on the left displays the level of the volatility for that date and the axis on the right displays the percentage change the move would represent, in this case the move higher is a 4.27% increase in volatility.  You can now see how the resilting change effects the value of the position in the first pane.


Similar to the Projected Underlying pane you can make multiple predictions to changes in volatility by moving your cursor to a second date and adjusting the volatility line to the selected levels.  In this case we have simulated a move to higher volatility in late June a move lower in late July and finally a move higher at options expiration in August.


You also have the option of entering in a specfic volatility value by double clicking on the projection line.  In this case we have entered in a 3.36% increase in Volatility on July 1, 2014.

To change the date of the prediction type in the specific date in the date column or drop the calendar down by left clicking on the dropdown menu.  Choose the date of the volatility change by left clicking on the desired date.  To change the month left click on the arrows adjacent to the month and year.


If the volatility is displayed as Leg IV’s a change in the projected volatility will result in all legs of the trade to adjust to the new projected volatility level.  In this example you can see the how Put side of the trade has a higher volatility than the Call side but both are being adjusted for a 3.43% increase in volatility.


If you wish to plot changes to the legs individually you can right click in the Projected Volatility pane and choose Edit Lets Separately.  This allows the user to manually adjust the volatility for each leg individually.


As you move your cursor over an individual leg the projection line will thicken, in this case the user has the mouse over the orange projection line representing the Aug. 16, 2014 185 Put.  As illustrated by the color blocks to the left of the option legs on the top of the Projection Window.


To project a change in the selected leg hold the left mouse button down and drag the projection line to the desired level.


To adjust a second level move your cursor over the next projection line in the case we chosen the 195 Call represented by the yellow line and dragged the projection to a higher value.  You can now see how this affects the profit and loss of the position in the Projected Spread Value pane.