Option Payoffs Module

Welcome to the Option Payoff module from FTS.   This module will let you learn about option trading strategies.  These strategies provide the important building blocks for more complex risk management exercises as well as problems that need to engineer trading strategies around a view.

The module lets learn about option trading strategies "by doing."  Later you will be able to apply strategies learnt in this module to real world problems in a more powerful risk management module.

Lessons

Initial lessons start with the four common classes of strategies:

Naked Positions

Covered Positions

Spread Positions

Combination Positions

A comprehensive lesson is provided that applies the option trading strategies using this module.  Click on: 

Fast Start to Option Payoff Strategies

Elements of the Module Screen 

In the module to the left you can see two primary screens.  The top part is the display screen and the bottom part is the input screen. 

The input part has fixed data and preprogrammed option trading strategies.  In addition, you are able to build upon this to engineer more complex strategies using this default data.

Display Screen

You can change the scale in the display screen at any time.  To do so, click beside an existing number on the axis, use backspace to delete, and then enter your new scaling number.

Data Section

First, in the data section click on an option price to select an option type/strike price.

Second, by clicking on the buttons beside the name/strike of the option selected.  The top <<, >> buttons control integers and the smaller <, > control the first decimal place of a position.

Third, you can select to display results in either Payoff Diagram form or Profit Diagram form. The Payoff diagram plots the terminal payoff of the current option's position against the range of possible underlying asset prices.  

The Profit Diagram plots terminal payoff minus the original cost of the option's position.  That is, it depicts accounting profit.

Plot, Restart and Clear buttons are self explanatory.

Beside Clear the drop down menu provides a list of standard option trading strategies.  These will plot automatically once selected.  As a result, you can use this to learn the basic strategy set.

Using Your Own Data

You can paste data from the Options menu. The data must be copied from an Excel worksheet. An example worksheet is at this link

Simply copy the three columns: call price, strike price, and put price, and paste the data.

 

 

OS Financial Trading System, PO Box 11356 , Pittsburgh , PA 15238 USA , Phone 1-800-967-9897, Fax 1-412-967-5958, Email fts@ftsweb.com,

2003 OS Financial Trading System