The Track 'n Trade 5.0 Options Plug-in gives you the ability to place put/call orders on the futures chart, calculate profit/loss on an option or on an option strategy, calculate the "Greeks," and use two indicators that display the option as under or overvalued.
In order to place options orders or use any of the options tools, you will also need to own the Accounting & Simulator Plug-in. See the Accounting & Simulator Plug-in chapter for more information and call us at 1-800-862-7193 to reach the sales department and order the plug-in today!
Option orders can be placed by selecting the Options Call or Options Put order tools in your Accounting Toolbar. Click on your chart and hold down the mouse while you drag the order tool along the futures chart. Release the mouse button when you have reached your desired position. The Options Order window will open.
Commodity/Date: Type in the commodity symbol and date for the chart. The values are pre-filled when placing on chart.
Buy or Sell: Select from the dropdown menu.
Quantity: Enter the value you would like to use. The default is set at 1.
Strike Price: Enter the value of the strike price. The value is pre-filled when placing on chart.
Call or Put: Select the order type from the dropdown menu. The value is pre-filled with type of option order tool chosen.
Brokerage Fee: Enter the value you would like to use. The default is set at $0.00
Premium: Enter the point value for the strike price.
Value: Enter the dollar amount of the Premium.
Contingency Order: Check this box if you want the option order executed based on a specific futures price.
Note: Once you place an option order on your chart window, it will be filled on yesterday's close.
To-Be-Placed Order: An order that was created on a date beyond the current play-to-date. These order types will only appear if playing your chart back in time, to before the date when the order was created in your chart.
Order: A stop, limit, or market order which has been placed in the chart but not yet filled. Once filled, the order will be hidden from the screen and the open position will appear at the fill price.
Filled Order: An order which has filled and created or closed an open position. *Note: Filled orders will be hidden by default, you may show filled orders from the View menu > Hide Filled Orders > uncheck All.
Position: Created when an entry order is filled. An open position will remain in the chart until an order is created and filled which closes the position. Adding onto a position will price average the fill price of the added position to the previous open position following FIFO and price averaging futures trading rules.
Options preferences will open in your control panel when you place a put or call. (Once you click on the chart, the Preference tab will go back to chart settings.)
Restore Settings: TNT Default will change your settings back to the original software settings. My Default will change current settings to your personalized default settings. Apply To All Charts will apply your selected settings on all open charts. Save As My Default will save your current personal settings.
Option Order Lines: Used to adjust the color or line appearance of order or position lines.
Filled Color: Adjusts the fill color of option diamonds within the chart.
Font: Adjust font size, style or color.
Order Text Preferences: Choose what information you would like displayed for your on-screen order text. Buy/Sell (Long/Short) will display whether the order is to buy or sell. Quantity: Will display the quantity of the order. Order Type: Will display if the order is a stop, limit, or market order. Premium: Will show what premium the option order cost. Days to Expiration: Will display how long until option expires. Value: Displays either the current liquidation value of the option or the Paid/Recieved origination value. Profit/Loss (PL): Will display current profit/loss of your option trade.
To-Be-Placed Order: You may show the text of orders that have not yet reached their placed trade date. Will only appear when playing to before the date of the order creation.
Placed Order: Show text for orders which have been placed within the chart but have not yet filled.
Filled Order: Determine if text, an order line or order placement daimond will appear for filled orders. *Note: Filled orders will be hidden by default, you may show filled orders from the View menu > Hide Filled Orders > uncheck All.
Position: You may choose to display open option position text next to the position diamond or on the position line.
Update All Orders Automatically: Checked by default, choose whether you want any changes you make within the Order Preferences to apply to all orders in all open charts or just the selected order within the chart window.
The Options tab is located in the Control Panel after the Spreads tab. It looks like a blue up arrow and purple down arrow. When you first click on the Options tab, it defaults to the "Date View" which contains the options data available.
Open the corresponding futures chart in the Commodity tab for the options pricing that you are interested in viewing. You will notice that the Options tab is now populated with values.
When you purchase the Options Plug-in, An Options section will be added to your My Account tab in the Control Panel. Placed options orders will also be listed in the My Account tab.
The Options Tab defaults to the Date View, which shows a list of all strike prices available for that day. To view the history for a particular strike price, click on the Strike button and select the specific Put/Call Strike price from the dropdown menu. Once this value is selected, the history for that price is generated.
To view the historical interest rate data, click on the Rate button to the right of the Strike button. The rate displayed is the average monthly interest rate of the three month Treasury Bill secondary market rates. Interest rates are used by the Black & Scholes options formulas to determine the theoretical options price (more information on Black & Scholes at the end of this chapter).
Note: Because most futures contracts expire in under a year, we have not noticed the interest rate to make a large difference on the dollar value of an options price.
Interest rates are updated by Gecko Software, Inc., on a regular basis. If you want to add a new interest rate manually, click on the Add Interest Rate button and the Add Interest Rate window will open. Choose the date for the effective date dropdown menu and type the new interest rate in the input box. Click OK to save or Cancel to exit from the window.
To delete an existing interest rate, select the interest rate that you would like to delete by clicking on it. Click the Delete Interest Rate button and a window will open asking you to verify that you would like to delete this interest rate. Click YES to continue or NO to cancel.
The OS Calculator determines profit/loss on an option or option strategy. Click on the Calc button to open. Click on the Add New button to add an option order to the calculator and the Option Order window will open. Specify the details of the options order and click OK to add the order to the calculator.
The options order details have now been added to your option strategy list on the left side of the OS Calculator and the Profitability Graph of the Option Expiration is available on the right side.
Select the order you would like to change and click the Modify Selected button. To delete orders from the calculator, click on the order and click the Delete button.
To place the orders from the calculator on the underlying futures chart, click the Place Order(s) button or Cancel to exit the Options Strategy Calculator.
The OS Calculator enables you to enter an Option Strategy to see the potential profit/loss of that strategy/order.
The Options Plug-in contains two indicators used to determine if an option is over or under valued. The indicators available are Options Strike Value and Strike Price. Select to view these indicators from one of these locations.
The OSV and STRK buttons have been added to your Indicator Toolbar at the bottom of your screen. Click on the indicator you would like to view. You can also change the put/call strike that the indicator is based on from the dropdown menu next to the buttons.
Right-click the Indicator Window to view the dropdown menu. All your indicators are listed in alphabetical order. Highlight and click the indicator you would like to view. Selected indicators will have a checkmark next to their name.
This indicator displays the theoretical option values versus the actual option price value for a specific put/call strike price as a histogram. The positive values represent over-valued and the negative values represent under-valued options.
Example of the OSV in the Indicator Window
Open the Preference tab from the Control Panel on the left of your screen. Click on the Indicator Information Display to scroll through the different Indicators you have open until you get to OSV. The preferences will appear in the Control Panel. (Once you click on the chart, the Preference tab will go back to chart settings.)
Restore Settings: TNT Default will change your settings back to the original software settings. My Default will change current settings to your personalized default settings. Apply To All Charts will apply your selected settings on all open charts. Save As My Default will save your current personal settings.
Options Strike Value: Choose the color of your Over Valued and Under Valued lines.
Strike Price: Enter the price you would like to use.
Thresholds: View up to four thresholds at a value that you type in and a color that you choose.
This indicator also displays the theoretical option values versus the actual option price value. However; this indicator displays them as two lines. By looking at these two lines you are able to determine if the option price is under or over priced.
Example of the STRK in the Indicator Window
Open the Preference tab from the Control Panel on the left of your screen. Click on the Indicator Information Display to scroll through the different Indicators you have open until you get to STRK. The preferences will appear in the Control Panel. (Once you click on the chart, the Preference tab will go back to chart settings.)
Restore Settings: TNT Default will change your settings back to the original software settings. My Default will change current settings to your personalized default settings. Apply To All Charts will apply your selected settings on all open charts. Save As My Default will save your current personal settings.
Strike Price: Choose the color, line style, and line thickness of your Black and Scholes Theoretical and Reported Market Value lines.
Strike Price: Enter the price you would like to use.
Thresholds: View up to four thresholds at a value that you type in and a color that you choose.
Modern option pricing techniques are often considered among the most mathematically complex of all applied areas of finance. Financial analysis are now able to calculate, with alarming accuracy, the fair market value of a financial option. Gecko Software, Inc., employs the calculations developed in 1973 by Fischer Black and Myron Scholes. This model is known as the "Black and Scholes Options Pricing Model."
The Black and Scholes pricing model uses a sophisticated mathematical formula to calculate the theoretical value of an option using variables such as market open, high, low, and close values, interest rates, volatility calculations, and other such information to give us these all important values.
Track 'n Trade 5.0 is, first and foremost, a trading simulation software application where you are able to go back in time nearly 30 years and practice trading forward, one day at a time. In essence, we are giving a trader 30 years of simulated trading experience in a matter of hours, days, or possibly weeks. We allow the trader to use actual historical futures market OHLC (Open, High, Low, Close) data to simulate trading the commodities market. In that regard, it would be nearly impossible for us to assemble a complete set of 30 years of historical options data which would allow users this same historical data training privilege. Also, due to the massive amount of data this would require, and given today's limits of computer speeds, hard drives, and storage capacity, trying to provide this type of data history to a typical user would simply put this capability out of reach for the common trader.
This is where the Black and Scholes pricing model comes into play. Our skilled computer scientists at Gecko Software have created a way for us to use the data generated by the Black & Scholes data formula to recreate "on the fly" historical options data as needed by the user. This way a trader using our software can recall acutely accurate "simulated" options data from 30 years ago without actually having hundreds of megabytes of options data history stored on their computer. The trader can then simulate trading the financial options market with unparalleled accuracy. This unparalleled capability allows new traders the ability to learn and practice basic trading strategies that can then be taken to the actual markets. It also allows experienced traders the ability to create and back test advanced simulated trading models and systems.
Another way in which Gecko Software computer scientists have implemented the Black & Scholes formulas to help our traders is with two very unique indicators which sit below a chart of the underlying financial asset. As the Black and Scholes formula dictates what the actual "theoretical" value of an option should be on any given day, Track 'n Trade 5.0 will plot the "actual" value of the option along side the Black & Scholes model. This creates an overvalued or undervalued indicator, which lets our users know, from a simple graphical representation, if the current price of an option is inline with market sentiment and trading at a premium or a discount.
Options data is often times very spotty and full of holes, and due to the enormous amount of data generated by the options exchanges, there is very little done to try and repair these holes or bad data ticks. When options trade, they begin a data stream where they generate an Open, High, Low and Close for each day's trading range, but some options, which are usually further out of the money, don't trade every single day. This causes gaps or holes in the data stream. One way or another, these gaps or holes are either filled, or just left blank. Often times, these gaps are filled by data vendors who simply pull yesterdays values forward to today. They'll do this for weeks on end, which only serves to create a very inaccurate and unreliable value stream, a stream of data that would be difficult to use in any kind of simulated trading environment or to provide much real-market value.
Just like the genetic scientists did in the classic movie Jurassic Park by filling the gaps in the dinosaurs DNA strand with frog DNA allowing them to recreate or clone a dinosaur, our computer scientists here at Gecko Software fill the gaps in the live options market data stream with Black & Scholes "theoretical" prices, giving a more accurate representation of the actual options value. This allows our users the ability to have a more complete and highly accurate representation of what actual market data would have been on any given day.
To differentiate the fictitious theoretical data within the data stream, we tag it with an asterisk (*) so our users will know when they are looking at actual market data reported by the exchange, or a theoretical value inserted into a gap by the Black & Scholes model. In keeping with the Jurassic Park theme, the process that creates and inserts the theoretical data into the actual data stream is code named "Frog Data."
Links
[1] http://education.trackntrade.com/node/1593/