thinkTank: Think Outside the Box

How often do you analyze the risk/reward trade-off for a potential options trade, then second-guess your decision and end up not placing the trade? It happens. Trading gives rise to anxiety and, as a result, when it’s crunch time, you may look for anything to procrastinate placing the trade—munch on snacks, watch cat videos, play with your phone, and so on.

Fortunately, there are some tools you could apply that might help reduce the pre-trading anxiety. Let’s focus on the Analyze tab on thinkorswim®. There are many features that can be found on this tab, but traders often stick to the default settings. Here are three others to consider.

Custom layouts for the Option Chain. There’s virtually no limit to how you can customize the Option Chain on thinkorswim (see figure 1).

1. Filter based on parameters such as side (puts, calls, or both), expiration type (regular, quarterly, or weekly), days to expiration, and strike price. You can also choose to display the Option Chain by spreads. Select the Spread menu to see all your choices. You can also select the number of strikes to display.
2. Suppose you choose to display four strikes. You can select the Expand all drop-down panels on the far right of the Option Chain. This displays the strikes for all the options in the chain. 
3. To customize the column layout, select the Layout menu. Here, you’ll find a bunch of customized layouts. You can also create your own from the Customize… menu. 
4. Select the variables you want in your layout from the Available Items column and add them to the Current Set. To save this layout, again, select Layout, then Save As..., and give it a name. It’ll be listed at the bottom of the menu. You could also select the column title and, from the menu, select what you want displayed.

Options Statistics. Want to break down volatility (vol) and know more about the options order flow? That’s where Today’s Options Statistics could help. Note it’s divided into three sections (see figure 2). On the left is the vol breakdown; the middle section looks into the order flow; and the section on the right breaks down the Sizzle Index. 

1. The vol section gives you an idea of whether vol is on the low or high side. You can see where implied volatility and historical volatility are relative to where they’ve been in the past year.  
2. The order flow displays volume on calls, puts, and the total. As an example, if more calls are trading, you’ll be able to figure out if there’s greater emphasis at the bid, ask, or somewhere in between. You’ll see what percentage of the total volume took place at the bid. The section titled Delta Between gives you an idea of the options trading activity for an underlying. 
3. The Sizzle Index indicates if more traders are buying or selling calls or puts. In a nutshell, a Sizzle Index of 0.5 suggests prevailing volume is around half the average for a specific security. Think of the Sizzle Index as a scanner of potential unusual options activity.

Product depth. Speaking of unusual options activity, let’s move on to vol skew. Skew indicates if the markets are behaving normally. Typically puts are more expensive than calls, but sometimes the skew can be reversed or flat. Product Depth, found below Today’s Options Statistics, is a graphical representation of the skew (see figure 3).

1. Select Product Depth (make sure to select it from the settings on the top right).
2. Select Options (you could select Futures also), then from the Show menu, select the type of options you wish to see (All, Calls, Puts, OTM, Average). 
3. Select any number of expirations you want to visualize.
4. Select the number of strikes.
5. From the Value menu, select Impl Vol (there are other choices available).

Knowing the skew could help strategy and strike price selections.

It’s a good idea to explore the many features available on the thinkorswim platform. Knowing your tool choices could help you make more confident decisions when placing trades.