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Options Strategy – Analysis

Video Tutorial

beeTrader – Options Strategy

Understand the Analysis function

Click on the image to expand

In Analysis it is possible to analyze the strategy through a completely customizable 3D chart that shows its evolution according to the parameters set by the user. The user has the right to choose the property to be displayed in order to obtain the graphic representation he wants and in each point he can evaluate the value of the Greek and atnow of the strategy.

The Analysis function should be considered as a more sophisticated version of the Options Evaluator As it shows the strategy as a whole with all the legs that make it up, while in Options Evaluator you can analyze a single option at a time.

In the first column of results (Strategy) the current values of the strategy are shown.

While on the second, Crosshair Point, the values corresponding to the point indicated by the mouse are shown. The difference between the two values is shown in the third column, Difference.

The Greeks are linked together according to the relationships expressed in the Relations table.
Example: The Greek Speed represents the variation of the Gamma with respect to the variation of the Spot Price.

The Greek frets are subdivided according to the coloring by first derivative (coral color), second (green color) and third (blue color), or Greek of first order, second or third order.

Examples of use

Below is a brief preview of the studies that can be performed with Analysis.

Vanna – the power of the Greek higher order

The Vanna is a Greek of higher order and is very useful as an indicator of complex strategy since with a single value it represents both the change of the delta with respect to the volatility, and the change of the Vega with respect to the variation of a point of the spot price.

In short: a gem!

It has a positive value for the Call options and a negative one for Put options, precisely because increasing the implied volatility increases the chances of the options to go ITM and this is synonymous with having a higher delta (in absolute value).
A Trader could think of turning the strategy around just by looking at the delta, but if he also looked at Vanna he would have the missing information, how much does the delta vary with the volatility? In fact, if the volatility increases, the delta increases and consequently increases the quantities of the underlying to be used to neutralize the event and increases just like the value of Vanna.

But what would you change if you looked at the Vanna?

Suppose we have a strategy of type Reversal, long Call and Short Put and suppose that two contemporary events happen or we suppose that the price falls and that volatility increases.
Such a case would logically do more damage in the Put part of the strategy because there would be the greater increase in implied volatility and therefore in the delta.
In practice, it is happening that Vanna’s long position is becoming increasingly exposed in a falling market.
In practice there is an increase in downside risk due to two factors that are implicit flies and the spot price.

This shows that in the case of multiple events the greatest risk is measured with the Greek VANNA. The fact that it is mostly used by investors of complex portfolios, does not justify the small trader from not using it, there is! It is calculated … let’s have a look!

Vomma – but how important that is

As the Gamma represents the sensitivity of the Delta to changes in the price of the underlying, the Vomma represents the sensitivity of the Vega with respect to the change in volatility.
In other words, its use is essential for a good behavior of volatility strategies or Calendar.
In many Vega strategies exposed, the euro value which has the greatest weight (apart from the Rho) is often the Vega. The trader looks at it and knows that as the volatility point changes, the value of the strategy will vary in absolute terms with the value of the Vega.

Almost!

Because the Vega, similar to a snowball rolling on other snow, changes its size !! And it can become unexpectedly large or small.
And then, just to have no surprises, let’s measure how much this blessed Vega will vary by looking at the value of Vomma.

The figure shows that it is practically irrelevant in the ATM options but becomes important in the wings, in a symmetrical manner.

Conclusion: it is the story of the piper who was going to play but came back played!

On closer inspection we note that the sum is greater with decreasing volatility .. so if I have a long Vega strategy, then the decrease in volatility will be more impactful than the one that shows me the value of Vega!

Yes, I know!
These Greeks are a hard time, requiring application. But if you earn money from options trading without effort then they would be like the Devil’s flour that turns into bran.

Have a good trading and go over the Vanna!

Click on the image to expand

I forgot: where are these values? Right-clicking on the strategy in the properties of individual option, strategy or portfolio values. The analyzes instead, with the respective graphs, can be found in the Option Evaluator or in the Analysis window.

Look here what happens by magnifying the image above my real strategy:

Positive VEGA strategy !!

Not true! It is 10 times as negative!