Strategy Builder
- Brendan Hebert
The Strategy Simulator is a tool designed to give market participants a way to evaluate the theoretical behavior of a futures options strategy. A futures options strategy can be composed of individual or multiple options or options tied to an underlying futures contract.
Strategy Inputs
Expiration - The last day on which an option may be exercised, or the date when an option contract ends. Also includes the number of days till options expiration (this includes weekends and holidays).
Side - The type of option the strategy is analyzing.
Action - Each option or underlying futures contract can be bought (long) or sold (short), this button sets the position direction.
Strike - The price at which an option purchaser may buy or sell the underlying commodity futures contract regardless of its current price.
Quantity - The number of contracts that each strategy leg comprises.
Entry - The entry price of the leg. By default, the most recent traded price is entered. Click in the button and enter any price for that leg and see the subsequent evaluation change.
Commission - The dollar amount by which a broker charges for futures and futures options execution.
Strategy Leg Outputs
Bid - The bid price for the option. Where the contract can be sold at that given time.
Ask - The ask price for the option. Where that contract can be bought at that given time.
Max Gain - The maximum theoretical gain potential of the leg. Max gain can take on infinite values.
Max Loss - The maximum theoretical loss potential of the leg. Max loss can take on infinite values
Theo - Theoretical Value is the hypothetical value of the option
Impl. Vol - Implied Volatility (IV) is the estimated volatility of the underlying over the period of the option.
Delta - Delta measures the sensitivity of an option's theoretical value to a change in the price of the underlying asset.
Vega - Vega measures the sensitivity of the price of an option to changes in volatility.
Theta - Theta is a measure of the time decay of an option, the dollar amount that an option will lose each day due to the passage of time.
Total Strategy Outputs
Breakeven Points - Breakeven points are underlying instrument prices where the strategy has zero profit at expiration.
Bid - The bid price for the option. When multiple options or a futures leg is attached to the strategy, this value will be null.
Ask - The ask price for the option. When multiple options or a futures leg is attached to the strategy, this value will be null.
Max Gain - The maximum theoretical gain potential of the option strategy. Max gain can take on infinite values.
Max Loss - The maximum theoretical loss potential of option strategy. Max loss can take on infinite values
Theo - Theoretical Value is the hypothetical value of the option position.
Delta - The net delta of the option strategy.
Vega - The net Veg of the option strategy.
Theta - The net theta of the option strategy.
Addition and and Removal of Legs
To add a options or futures leg to a strategy, click on either of these buttons found below.
To remove a option or futures leg, hover your cursor to the right of the ‘Commission’ field and a trash can icon will appear.
To rearrange the ordering of the legs, hover over your cursor to the left of the 'Expiration' field and click and drag the handle icon that appears.
Strategy Plot
The x-axis will display the underlying values while the y-axis will display the PnL for the strategy at the corresponding underling price. The underling ‘Last’ price will display as a blue vertical line while the breakeven point(s) will display as a orange vertical line. The reward profile of strategy at expiration will display in green while the risk profile at expiration will display in red.
By hovering your cursor over the plot, a tooltip will appear that displays the underlying value at that point, the PnL at expiration and the current PnL for the current session. The current session PnL is visible as a light blue line.
Greeks Overlay
View the risk sensitivities of the option strategy overlaid directly on the theoretical performance by applying the some or all of the option Greeks.
Delta - Delta measures the sensitivity of an option's theoretical value to a change in the price of the underlying asset. It is normally represented as a number between minus one and one, and it indicates how much the value of an option should change when the price of the underlying stock rises by one dollar.
Gamma - Gamma measures the rate of change in the delta for each one-point increase in the underlying asset. It is a valuable tool in helping you forecast changes in the delta of an option or an overall position. Gamma will be larger for the at-the-money options, and gets progressively lower for both the in- and out-of-the-money options. Unlike delta, gamma is always positive for both calls and puts.
Vega - Vega measures the sensitivity of the price of an option to changes in volatility. A change in volatility will affect both calls and puts the same way. An increase in volatility will increase the prices of all the options on an asset, and a decrease in volatility causes all the options to decrease in value.
Theta - Theta is a measure of the time decay of an option, the dollar amount that an option will lose each day due to the passage of time. For at-the-money options, theta increases as an option approaches the expiration date. For in- and out-of-the-money options, theta decreases as an option approaches expiration.
Rho - The rate at which the price of a derivative changes relative to a change in the risk-free rate of interest. Rho measures the sensitivity of an option or options portfolio to a change in interest rate. For example, if an option or options portfolio has a rho of 12.124, then for every percentage-point increase in interest rates, the value of the option increases 12.124%.