Saturday, November 26, 2011

Two Nice New Options for Traders

Electronic brokers TradeStation and tradeMonster launch powerful new tools to analyze and trade options.

Two online brokers catering to frequent options traders have made nice enhancements to their tool kits. Software-based TradeStation has integrated an extremely powerful update into its options platform, while Web-based tradeMonster has introduced more-sophisticated strategy analysis and performance-tracking measures.

TradeStation ( last week launched OptionStation Pro at the Traders Expo in Las Vegas. It’s available at no extra charge to customers. While the platform is extremely powerful, it includes tools a beginner could use, with the idea of graduating to more advanced features over time.

OptionStation Pro is launched from an icon on the main TradeStation tool bar. One way to get started is to bring up a quote panel for a particular stock and its associated options contracts. The quote screen is easily customized, and the expiration countdown displays not only days to expiration but also hours and minutes. The latter is important for options close to expiration, and the countdown is built into the calculations for all the different trading parameters, better known as “the Greeks,” that you use, as well as each spread you might create. Using more precise dates in the calculations will give you better results for time-based research, as well as for probability analysis.

You’ll find a drop-down box that lists 16 of the most common spread types, such as butterflies and condors. Choose one and you’ll see a variety of possible spreads you can buy. Here’s where OptionStation Pro really turns it on.

Using check boxes, you can pick all the displayed spreads that you’d like to analyze further. If you use the two-dimensional risk graph, you’ll see the value of each spread over time, which is displayed with a probability calculator that shows which of the strategies is most likely to turn you a profit. Other platforms have probability calculators for options strategies, but TradeStation’s implementation is fascinating.

You can also use a tool called price slices, which allows you to make assumptions about the potential future value of the underlying stock and perform a sensitivity analysis. Another tool you can use is a 3D graph, which shows the landscape of profit-and-loss values over the lifetime of a spread.

Since this is all part of the firm’s downloadable platform, the myriad calculations take place on your computer, and the analysis is done as quickly as your hardware permits. We checked out OptionStation Pro on a relatively new Windows-based notebook, which was hooked up to a large-screen high-definition, or HD, TV for the display. Rendering the 2D and 3D graphs was accomplished very quickly, and the real-time Greeks displayed promptly as well.

Placing a trade through OptionStation Pro is accomplished with a single click. The prepopulated order ticket is created; once an order is sent, you can use the graphs in the platform to track the value of your trade in real time. All of this analysis, trading and tracking is done on a single screen that can be easily customized to your needs.

TradeStation promises more upgrades. Though the firm charges $99.95 per month for the platform, it’s free once certain minimums are met (5,000 shares traded, or 50 options contracts). “If you’re serious about trading, you will meet our minimums quickly, and the platform is free,” says vice president of strategic relations Janette Perez.

WEB-BASED TRADEMONSTER ( has improved its setup with three new tools: performance management, cost-basis adjustment, and portfolio-management tracking and assessment. It’s all integrated into the firm’s platform, which is free to customers.

Launched in September, the performance-management piece allows an options trader to create custom strategies and see related performance data. This feature also allows you to add hypothetical legs to an options strategy that you already have in place to create synthetic trades.

Aric Forsythe, vice president of product management at tradeMonster, explains that many customers use a variety of strategies on a single underlying stock that could overlap. For instance, you might have a calendar spread in place, and shortly thereafter set up a vertical-cal spread on the same stock. The new tradeMonster system would identify the second trade, and account for its effect on the first options position. But it would also allow you to define and track each strategy so that the calendar and vertical-call spreads would be seen separately. “This gives the customer the flexibility to manage what he wants, in the way that he wants,” Forsythe says.

The second new piece is cost-basis adjustment, which will come in handy for those who roll options positions. For example, a covered-call writer might want to see how this strategy is reducing his cost basis in the underlying stock over time. You can also adjust your cost basis when a dividend is issued. There’s a filtering mechanism that makes it easy to select the appropriate transactions, simplifying what could be a tedious manual process.

The third piece builds on tradeMonster’s Trade Journal by allowing clients to tag transactions with custom titles. For instance, if you’re following a particular newsletter writer, or if you see a recommendation in Barron’s that you like, you can tag each trade appropriately. Then when you run analytical reports in the future, you can sort and generate performance statistics on those tags.

The assessment analysis you generate can also be viewed graphically, and the data can be filtered by tags, dates and symbols, among other items. “These features replace a lot of manual spreadsheet work that traders end up doing,” says Forsythe.

These performance analyses are for your own purposes, and don’t map directly to the reports the IRS will see. The intent is to provide you with a way to audit yourself and come up with answers to questions like: How am I doing when I write calendar spreads versus iron condors? Am I more successful when trading certain ETFs or particular stocks? Are some newsletters steering me toward more profitable trades than others?

It’s good stuff to know.

Published in Barron’s, November 21, 2011

Posted by twcarey on 11/26 at 02:46 PM
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Saturday, November 05, 2011

E*Trade Expands Its Options

A little late to the game, the big online broker has upgraded its options programs with some helpful new additions.

Options trading entered the mainstream of retail investing over the past decade, helped along by the tools created by online brokers. Education has made the once-arcane topic more accessible, allowing retail investors to feel more confident about using options to hedge their stock investments. It’s worked. The Options Industry Council estimates that average daily trading volume for 2011 (through September) was 18.6 million contracts, up 22% over the 15.2 million contracts traded in the same period last year.

Several online brokers we regularly cover have made options-trading tools their key focus, including the aptly named optionsXpress ( and Options House (, along with tradeMonster ( and TradeKing (

Recognizing the growing importance of options trading to its customer base, E*Trade ( has just added four new options-analysis tools to its Website and its downloadable software platform, E*Trade Pro.

One of these tools, the Options Screener, fills a major gap in E*Trade’s options research lineup, and should prove extremely useful.

Though a little late to the options- screening party, E*Trade’s new tools are well designed, and should provide customers with trading ideas and excellent analytics. The firm has also added educational programs based on the tools. Senior Vice President Chris Larkin claims that “This suite of tools can be used by a wide range of customers, from beginning options traders to the very advanced.”

Larkin says options accounted for nearly 20% of daily average retail trades at E*Trade during the second quarter, and the firm’s clients have embraced the product. “Within the last year, we’ve seen every type of market—bear, bull, and highly volatile—so showcasing options-trading has helped drive the market,” says Larkin. The four new tools are accessible from E*Trade’s Options Tools’ menu. The first three help guide you when you know the underlying stock you want to analyze.

The Strategy Optimizer helps you figure out which options strategies make the most sense, taking into account your estimate of a target stock’s price, time horizon and market outlook (bullish, bearish, neutral), and the amount you want to invest. The Options Analyzer considers your existing holdings and graphically leads you through a series of what-if scenarios, plotting out your potential profit or loss. The Probability Calculator makes extensive use of E*Trade’s historical volatility database to calculate whether a contract will close inside (or outside) a particular price range.

The Strategy Optimizer asks you to fill in four parameters—target price, expiration date, volatility and investment amount—and then generates a table of results for you to consider. You can use a series of slider bars to adjust these parameters, or just type your estimates in directly. The top three results, ranked by potential profit, are presented in detail, while the remaining contracts can be expanded if you’d like to see more information. You can take one of the strategies and run it through the Options Analyzer, which shows the profit and loss in a graphical format. To get an idea of how a strategy is predicted to work out at expiration, you can look at it in the Probability Calculator. Then, if you want to trade the strategy, clicking on the “Trade” button generates a trade ticket.

The fourth tool, the Options Screener, looks at the entire market, in real time, and lets you filter for contracts based on the current environment. There are 19 built-in screens that let you view, for example, unusually high call volume and puts with high time premiums. You can build your own screen, or tweak the ones already in place to meet your own specifications.

Larkin says customer feedback is guiding the refinement of these tools. In the near future, based on an investor’s request, you will be able to filter out ETFs from the screener results, for example. “We’ve gotten a lot of good feedback from our beta-testers, and we’re tweaking the tools as quickly as we can,” Larkin says.

Though E*Trade definitely isn’t the first online broker to make screeners and scanners available, it’s done a nice job with the design and implementation. Better late than never.

TRADE FREE FOR LIFE AT TRADESTATION: The well-regarded firm ( has created a contest that will give the winner a commission-free futures or equities brokerage account. Through Nov. 20, TradeStation invites the public to dream up ways to use its EasyLanguage programming environment to analyze and trade financial markets. You must be a U.S. resident over 21 years of age to enter, but you don’t have to know how to use EasyLanguage to participate.

The contest challenges entrants to come up with an idea that can be implemented on TradeStation’s platform—it could be a strategy, an indicator or an analysis tool. The winning suggestion will be brought to life on the trading platform, and its creator can trade commission-free for life in one account. Enter at, or on TradeStation’s Facebook page.

PROMOTING FINANCIAL LITERACY: A new Website, FraudAvengers ( was launched in mid-October with the goal of educating the public on how crooks use online-payment options and technologies to commit fraud.

The site was created by the Foundation for Payments Fraud Abatement and Activism, a Texas-based nonprofit corporation with the slogan, “Pros preventing cons.”

The site contains blog articles contributed by industry experts who want to inform individuals and small businesses on how to reduce their personal risk of fraud. Founder Robin Slade says, “We are confident that informed individuals can be a major force in fighting fraud.” Its purpose is to provide dynamic, up-to-date information that empowers consumers to protect their financial well-being.

That’s a laudable goal, and a community worth joining. 

Published in Barron’s, October 31, 2011. 

Posted by twcarey on 11/05 at 02:44 PM
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