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Confidence Boost: Tools to Help Hone Your Options Strategy

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October 12, 2017
Confidence Boost Options Strategy
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Are you new to options trading? Do you have a potential options trade idea but you're not quite confident enough to pull the trigger? Since it may be unwise to put on a trade that you're not confident in making, you may be on the lookout for a tool, or maybe even an advisory service, to help you get that needed boost. Here are two potential tools for TD Ameritrade clients: the Trade Finder tool in Trade Architect by TD Ameritrade and the Risk Profile tool in the thinkorswim® platform. Or, if you want even more help in crafting a trade to suit your options strategy, consider looking to TradeWise, a trade recommendation service available through an affiliate advisory service.

I Think I Have an Idea

If you’re an options trader with a particular security in mind, and an idea of your objectives, but not sure which options trade you should consider, look at the Trade Finder tool in Trade Architect. Trade Finder will scan for an option trade based on the criteria you enter. The tool can be accessed by logging into your account at TDAmeritrade.com, launching the Trade Architect platform, and clicking on Trade Finder.

After entering the symbol, set your expectation–bullish or bearish, as well as the extent of the movement. Next, enter the timing for the trade and the desired "probability of success," which is defined as the probability that a strategy makes at least one penny more at the end of the trade, given your inputs. See figure 1.

Trade Finder

FIGURE 1. HONING WITH TRADE FINDER.

Using Trade Finder in Trade Architect to help narrow the search for options trading ideas. For illustrative purposes only. 

After specifying the amount of your portfolio you wish to allocate to the trade, Trade Finder selects a strategy, expiration, and strike prices. It evens provides an interactive walk-through of the strategy to help you understand it better. Once you’re ready to pull the trigger, simply click the Trade button to send the trade to market.

I Think I Know Just the Thing

If you already have an option trade in mind, you can use the Risk Profile tool in the thinkorswim platform to analyze and stress-test your trade idea. After logging into the platform, click the Risk Profile tool under the Analyze tab. You can visualize a trade’s potential P/L based on different factors including changes in the price of the underlying stock, implied volatility, and with the passage of time. See figure 2.

Risk Profile Tool

FIGURE 2. SCENARIO ANALYSIS WITH THE RISK PROFILE TOOL.

Analyze a trade with the Risk Profile tool on the thinkorswim platform. For illustrative purposes only. Past performance does not guarantee future results.

If you’ve ever wondered what your trade might look like in one week’s time, with the stock up 10% and the implied volatility down 10%, this might be the tool for you. For example, you can tweak the components of an option trade, from a single option to a multi-legged strategy (such as the iron condor in figure 2). You can play around with strike prices, expiration dates, price changes in the underlying stock and more. Or scrap your potential strategy altogether and analyze a different one.

I Think I Need Help—Where Do I Start?

If you’re not quite ready to dissect an iron condor, the TradeWise advisory service can help guide you through different option strategies. For a fee, TradeWise will serve up advice, real-time trading ideas, and even specific trade recommendations. If you’re brand new to options trading and don’t even know where to start, then having a risk defined trade idea land in your email inbox can really help shorten the learning curve.

Even if you consider yourself a more seasoned trader, seeing the methodology veteran floor traders use to initiate and manage trades can be enlightening. There may be some things you’ve never considered, or never been aware of. In addition, if you have a TD Ameritrade brokerage account, trade recommendations can be automatically entered into your account by setting up Autotrade*. (Note: standard commissions and fees apply).

Remember, just because the trade ideas are coming from an advisory service does not mean that they can't lose. Options trading involves significant risks, including risk of loss and is not appropriate for everyone. Regardless of where a trade idea comes from, have a plan and only trade what’s appropriate for your objectives and risk tolerance.

Whether you consider yourself a greenhorn, a cagey veteran, or somewhere in between, there’s a tool that can perhaps show you something new, or help give you the boost of confidence you might be looking for.

Powerful Platforms, Powerful Tools

Get trading access at many levels, from device-optimized mobile apps to the professional-grade thinkorswim® platform.

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