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 (http://www.tradestation.com) 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 (http://www.trademonster.com) 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