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Options Strategy – What-If

Video Tutorial

beeTrader – Options Strategy

Understand the What-If function

Here too, as in Comparison, we have the opportunity to study four possible strategies. But in What-If we can decide the exact moment of when to do the operation. The What-If (what …. if) was designed to build future scenarios by setting the date, the underlying price and volatility and to see how the strategy behaves in future scenarios. It is therefore possible to study in advance the counter-moves to be carried out if the hypothesised event occurs.

To price the options in future cases we’re going to hypothesize What-If is based on the Volatility Surface . It is advisable to acquire the surface every time a simulation is performed in order to have the most realistic option prices possible.

  • Underlying Price: set the value of the underlying for the simulation;
  • Price Change: set the% variation of the underlying for the simulation;
  • Volatility Change: set the% variation of the volatility for the simulation;
  • Days from Today: indicates the days of the simulation difference from today’s date;
  • Analytics Date / Time: field where to choose the date of the simulation.

  • Apply: confirm the simulated operations with the current settings, then you can proceed with the simulation of another scenario. The system saves the simulated operations in the What-If History so that they can be consulted in the future;
  • Clear Selected: cancels all operations simulated by the selected strategy (1, 2, 3 or 4) to return to the starting situation;
  • Clear All: cancels all simulated operations for all strategies to return to the starting situation.

Example of What-If

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This is the starting strategy, that is a simple strangle sold composed of -1 call 3500 and -1 put 3400 on Dj Euro Stoxx 50 deadline 09/21/2018.

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Moving on to the What-If tab we immediately notice a small difference between the previous atnow value (in realtime) and the one reported on the what-if tab. The value goes from -8.00 euros to -11.00 euros, this must not alarm. It is absolutely normal that there are differences mainly due to the bid / ask spread (on what-if there is only one price). If this difference is too large (over 10%) the market has probably changed since the last volatility surface, it is therefore advisable to make a new acquisition in order to have the starting volatility that is needed to generate the most precise theoretical prices.

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Well, at this point let’s trace a scenario. Let’s say for example that the underlying drops to 3350, the volatility increases by two points and 36 days have passed.

In this scenario we can appreciate how the delta and vega loss of the strategy was largely balanced by the theta, in fact despite the fact that the underlying hit the strike, the strategy as a whole has a positive at now of 135.00 euros.

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Let’s say, for example, buy 1 put strike 3425 and sell another at strike 3325. So let’s move the down bep but at the expense of the up bep that is approaching. It may be a solution but let’s see with the other possibilities it offers in What-If if it is possible to do better.

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A possible improvement is to close the 3500 call which has already given much of its prize, so we are no longer exposed to the climb. We reduce the maximum gain, but still we are talking about gain and not loss (towards the climb).

We say that we like this solution, press the Apply button so that the changes are saved and are the starting point to continue with the simulation.

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Let’s say you spend another 15 days and the underlying drops another 50 points to 3300.

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A first hypothesis (strategy 1-blue) may be to proceed with the purchase of 1 put 3350 and simultaneously with the sale of 2 put 3250 to finance the previous purchase. A second hypothesis (strategy 2-purple) may be to proceed with the sale of the 3425 put, to the repurchase of the 3325 put to simplify the strategy. We remain only with the 3400 put at a loss, we try to sell 1 call 3300 protected with the purchase of 1 call 3400 and to raise the payoff sell 2 put 32oo.

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We decide to choose the first hypothesis (blue) and click Apply .

Now we can repeat the following steps infinitely keeping in mind that all the operations done and confirmed are saved in What-If History.

What-If History

As seen above, every time you click Apply the system stores the simulated operations and the conditions in which they were simulated. Everything is then saved within the end of the strategy which can then be consulted at will.