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:
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,
©2003
OS Financial Trading System