Where to Profit From Volatility
Options analytics firm Livevol joins broker ranks.
Options traders are a key market for most online brokers, primarily because they are much more active than investors who focus on a few stocks and some mutual funds. So it’s no surprise that analytical platforms for options traders have proliferated over time.
One of those analytical platforms, Livevol Pro, is offered as an add-on product by a number of online brokers, including tradeMonster. However, Livevol in the past year has been expanding its offerings to include trading. Its brokerage customers can trade options, of course, as well as stocks, and use the Livevol analytical platform for free.
Livevol has been around since 2009, with several available platforms. Livevol Core, for $79 a month, offers over 80 live market scans to help identify potential trades. You can modify the built-in scans, which identify volatility and technical events, to create your own personalized scanners, and flip through market sectors using a wide variety of volatility statistics. Livevol Pro, which includes advanced charting as well as tick-by-tick pricing updates, also lets you build skew charts displaying the volatility of each strike price by expiration date, that utilize two years of history. You can scan for covered calls, cash secured puts, iron condors, protective puts, and a variety of vertical spreads, as well. This platform is $300 per month.
Or you can sign up for a Livevol X account and get all of these tools for no additional charge beyond relatively low commissions. Utilizing proprietary technology, the Livevol platform efficiently handles enormous amounts of data. The options montage page displays live data as well as historical data; the platform is designed to optimize the flow of live information so that the historical displays don’t slow it down.
“As our name suggests,” says Catherine Clay, Livevol’s CEO and an alumna of options market maker Timber Hill, “volatility is something we spend a lot of time on.” Volatility tends to flatten during rising markets, but it displays spikes during market declines, even brief ones. Clay notes that the company’s proprietary technology powers a VIX-like calculation on every underlying stock that is optionable, looking at hypothetical 30-day, 60-day, and 90-day volatility. Historical volatility is also displayed for all optionable securities.
Livevol X is a platform that you download onto your computer. The layout is easily customized, and can be spread over four monitors. You can keep track of the time and sales of the options trades going through for the stocks on your watch lists, which gives an interesting picture of where traders believe the market is going.
The options montage, which Clay says is the focus for most of the firm’s customers, lets you play around with implied volatility so you can build your own model of an option’s price. “If you think you know where volatility is going, we can show you the theoretical price,” says Clay. You can create simulated positions in the montage and assess the risk as well as the trade’s impact on your portfolio’s profit and loss.
Livevol has skew charts built in, which usually look like a sideways smile--though some traders call it a smirk—as volatility is typically lower for the higher strike prices. But you can find skew charts that appear abnormal for a variety of reasons, such as a potential buyout or an upcoming earnings announcement. Abnormal skew can indicate a profitable trading opportunity, and Livevol lets you build a trade ticket directly from a skew chart.
Livevol’s trades are executed through Interactive Brokers, though you never see its interface. Portfolio-performance analysis can be monitored by underlying stock, expiration date, greek calculation, and a variety of other measures. If you have a lot of positions, you can organize them into folders and perform your analysis on a subset. You can also sort your portfolio by highest to lowest profit, or delta, or pretty much any other measure you can think of.
Commissions are on the low end of the market at $0.0065 per share for stocks (minimum charge of $1.50) and $0.65 per options contract (minimum of $1.50 per leg). Since Livevol clears through Interactive Brokers, they extend IB’s very low margin interest rates that currently range from 0.5% to 1.57%. You can get portfolio margining with an initial account funding of $125,000; to maintain it, you must maintain equity of at least $110,000.
There is no separate mobile platform for Livevol X, though, so these extensive options scanning tools aren’t exactly something you’d want to peek at on the road.