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Trader Trio: Three thinkorswim® Tools You Should Know

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April 1, 2014

Even if you’ve been using thinkorswim® for a while, odds are good parts of the platform are still unfamiliar. So let’s dig into some classic features, which pack a lot of bang for the buck.

1/ Position Statement

How It Works and Why It Matters

Keeping track of profit and loss (P/L) is standard. And if you’re not in the know, the Position Statement lives under the Monitor tab.

First, with derivatives, these values will always be calculated in real-dollar terms to allow for apples-to-apples comparisons. In other words, if you see a P/L on an option position of \$1.00, that is after any multiplying effect of quantity and specification and not a dollar gain on the contract price. So a \$0.25 move in say, an S&P 500 options contract would be represented as +/- \$25.00, after the multiplier is considered. Now, let’s break down each column on the page.

P/L Open. Measures the gain or loss of position value since an opening trade was made. When looking at a combined position (for example, all options in X symbol), P/L Open will not include any positions that have already been closed. In math-speak, P/L Open = (AVG COST x QTY) – (MARK x QTY).

P/L %. Same thing as P/L Open, but expressed as a percentage. P/L Open = ((AVG COST x QTY) – (MARK x QTY)) / (AVG COST x QTY).

P/L Day. Measures a position’s current value against the previous day’s close. Note that when looking at a combined position (for example, all options in X symbol), the P/L Day will include gains and losses from any position that’s been closed on a given trading day. P/L Open = (AVG COST x QTY) – (CLOSE x QTY).

P/L YTD. Measures a position’s current value against the close of the previous year. Note that when looking at a combined position (for example, all options in X symbol), the P/L YTD will include gains and losses from any position that’s been closed since the year began. P/L Open = (AVG COST x QTY)

– (CLOSE x QTY).

Mark Value. This is the value of the position at its current mark price (the amount of money it would give/take to close the position). With a short position, this would be a debit, since the cash from selling the position has already been included. In the case of a long position it’s a credit, since it would bring in funds when liquidated.

BP Effect. This is the impact on your margin, or buying power, available in your account.

Last, the greeks columns (delta, gamma, theta, vega) simply include each total position greek. For example, if you own 10 call options, and the greek column states 495 deltas, each call has 49.5 deltas.

2/ POSITION SUBGROUPS

Get Organized For Peace Of Mind

Captain Obvious says, “trading can be complicated.” Organizing combinations of positions with differing strategies, possibly in separate accounts, can be a challenge. To simplify, thinkorswim takes the Position Statement a step farther with a flexible system of “subgroups” you can use to arrange custom trades based on defined criteria. So at a glance you can see how any set of positions are performing. (Refer again to Figure 1.)

FIGURE 1: POSITION ZEN. All of the vitals for the trades you have on right now live on the Position Statement of thinkorswim. And if you can’t tell up from down because you’re holding too many positions, organizing your multiple positions into “subgroups” can help organize your worried mind. For illustrative purposes only.

With subgroups, you can assign either a whole position or individual trades in a position, to a defined subgroup. For example, you can separate some or all of the spread trades of a given type from other option positions. Or you could separate your “speculative” trades from your “high probability” trades to contrast your strategies’ effectiveness. According to your preference, you decide how to divide these positions. Within a subgroup, the software will track the metrics of a given position (e.g. P/L, delta, net-liquidation value, etc.), even if that trade is only a portion of the overall position in a given security. Positions can also be entered or exited directly within a subgroup so you can track their progress over time.

As for how this all works? To start, click on the action menu at the top of your Position Statement and check “Show Subgroups.” Then, right-click the position you’d like to move and in the menu choose “Move to Group > Add Group...” Since this is the first one you’ve created, you’ll have to give it a name. But other than that, there’s nothing to it. Other orders or positions can be added to that group from the same menu. To add an individual position trade, go to the Trade History section of the Account Statement and right-click on the one you’d like moved.

To assign subgroups to new positions, you have a couple of options. If you select a subgroup in the account selector at the top of the platform, any orders sent will go to this subgroup automatically. As well, a subgroup can be selected directly on the Order Confirmation dialog box. Closing orders can be assigned to the same subgroup as the opening transaction by checking “Assign subgroups to closing orders” in the Orders section of the Application Settings.

Watch Out For That Tree, Um, I Mean Trend

And for something new, we’ve added a different kind of alert on thinkorswim Charts—the ability to add alerts based on a chart drawing (e.g. trendline, retracement, channels, etc.). Now you can be notified whenever a security’s price has broken through a trend that you’ve defined, without being clairvoyant and picking a price. Cool.

The mechanics of setting up such an alert are straightforward. Simply right-click on a created drawing and select “Create alert with drawing…” This opens up the alert-creation menu where you can define how you’d like the alert to trigger. Since all drawings are in effect simple lines, an alert can trigger when the price crosses above or crosses below the defined line, or whichever comes first.

Beyond that, all the standard alert preferences can be set from this menu, such as submission time, notification method, or whether to track a reverse crossover. When these parameters are set to your satisfaction, click “Create” to set the alert. Creating a drawing alert will place a flag on the drawing to indicate that an alert has been set which can be double-clicked to either edit or cancel the alert.

Drawing alerts on all symbols may also be viewed in the “Alert Book” section of the “Marketwatch” tab, alongside any other alert types you may have set. This section shows you the name of the drawing and symbol for which the alert has been set, as well as the timeframe of the chart for which the alert applies. This last bit is very important to keep in mind to avoid confusion: since lines of various types change slope when applied to different chart aggregations, remember that an alert will trigger only when a crossover occurs on the same aggregation on which the alert was set.

For example, it’s possible to see a crossover on a 15-minute chart that does not appear on a 5-minute chart. So if the alert was created on a 5-minute chart then the alert would not trigger. To remind you of this, the chart will only show a flag on charts of the same aggregation, and the entry in the order book will specify to which aggregation the alert is applied.

FIGURE 2: TREND ALERT! Price alerts are as old as the sun. But this new baby can alert you when your stock smacks through the bottom of a trend-line or breaks out above it. For illustrative purposes only.