Risk Viewer: It’s What’s for Breakfast

Greetings, OptionsHouse traders. I wanted to take the opportunity today to talk about one of OH’s most invaluable tools – the Risk Viewer.

Whether the market is up or down, understanding your market exposure and Greeks-based risk is a key aspect of successful trading. PEAK6 Investments L.P.¹, the proprietary trading firm that contributed its DNA to OptionsHouse, spends considerable energy to make sure its traders understand risk and wanted to make sure that same good sense was baked into the OH trading experience. This is done mainly via the Risk Viewer, accessible from the Tools tab or smack dab in the middle of the Account screen.

Profit & Loss

The first screen you see when you start the Risk Viewer is the Profit & Loss view. This gives you a detailed view of profit and loss by symbol, position, expiration, or industry including: last price, daily change, your position, cost basis, and Delta (the estimated change in Position Value if the stock goes up $1 – always 1-to-1 with number of shares held for stock positions).

From here, and throughout the Risk Viewer, you can expand or collapse the tree view of your portfolio and group by Symbol, Expiration, or Industry. Other OH conventions include the ability to sort any column in ascending or descending order by clicking on that column’s name and the ability to open a new order ticket by clicking on your position (indicated in blue).

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Greeks

The next tab is labeled Greeks and it contains an in-depth look at the classic dimensions of derivative risk. Each measurement is a mathematical equation and each are essential for an options trader’s vocabulary. Check out this page if you have some time on your hands and want to know more.

Delta – A measure of the rate of change in an option’s theoretical value for a one-dollar change in the price of the underlying stock.

Delta ($) – A measure of the actual dollar exposure represented by the Delta number of shares – calculated by multiplying the delta by the last stock price. This calculation is valuable for determining your total portfolio’s exposure to the market’s percentage move.

Gamma – A derivative of Delta, Gamma indicates the rate of change for Delta with respect to the underlying asset’s price movement.

Theta ($) – A measure of the decline in the value of an option due to a one-day passage of time. A positive number indicates an increase in theoretical value over time, normally due to a short option position or bias.

Vega ($) – A measure of the dollar change in an option’s theoretical value for a one-point increase in the implied volatility. A negative number indicates a decrease in value for a one-point increase in the implied volatility, normally due to a short option position or bias.

Implied Vol – An estimate of the annual volatility of a stock that justifies the current price of an option.

Using the Greeks, the savvy trader can characterize risk to their portfolio presented by the usual culprits of market movement, volatility, and time.

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Market Risk

The Market Risk tab illustrates your exposure to potential price moves in the underlying securities that make up your portfolio.

The percentages listed represent one-day price movement up or down from the last price of the underlying security. Again, you can view by symbol, position, expiration, or industry and see your overall theoretical market risk.

If you trade stock, you probably have a pretty good idea what’s going to happen if it goes up or down, but options traders (and especially those that trade spreads) can use this tool to get a clear view of their portfolio’s market risk.

While we hope the trade winds are always blowing in your favor, the Risk Viewer is one multi-purpose tool every trader should use daily.

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