thinkTank: What If ... ?

It’s easy to get attached to certain features on our phones, cars, or gaming software. The downside—we become oblivious to features we never use. We may not need them. But what if they made our lives simpler or gave us a different perspective? After all, they were invented for a reason.

Think of your “go-to” features on the thinkorswim® platform. Maybe you use the Option Chain, Today’s Options Statistics, and Positions and Simulated Trades. Why not go beyond your comfort zone and try other tools on the Analyze tab that could take your options analysis up a notch? Three to consider: Price Slices, thinkBack, and OnDemand.

Price Slices

Ever seen this below the Option Chain? Know what it does? In a nutshell, it answers the question, “How much is your trade likely to make or lose if the underlying moves by some amount?” In effect, it helps you run through different “what-if” scenarios.

You can create as many price slices as you want and set them based on different variables (see figure 1).

1. Enter symbol and expand Price Slices.
2. Select the Price Slices menu and set slices based on percentages, dollar value, and standard deviations, among others.
3. Analyze the options greeks, profit and loss (P&L) at the open, P&L for the day, and buying power (BP) effect.
4. Send these slices to the chart of any stock you’re analyzing.

How do you select the slices? You could go back in time and identify significant price levels. Although the past isn’t a predictor of future price movement, it could act as a guide to help you prepare for different market scenarios.

thinkBack

Along the top of the Analyze tab, you’ll find the thinkBack subtab. At first glance it looks similar to the Add Simulated Trades subtab. The big difference: You’ll see end-of-day options going back 10 years (see figure 2).

1. Enter a symbol. From the calendar on the upper right, select the date you want to see.
2. Expand any expiration to see the strike prices, especially those that line up with the price slices.

Use thinkBack to test different options strategies and imagine what you would’ve done if certain scenarios played out.

OnDemand

This is another tool that lets you look backward. OnDemand is different in that it can replay all data on any day from December 7, 2009, to the present day. You can go back and watch any stock, index, future, or option, tick by tick, as it happened. And you can trade right along with it, using virtual money. It gives you an account with a virtual balance of $100,000 so you can enter simulated trades based on the replayed prices and see the P&L change.

The OnDemand icon is found at the top right of every thinkorswim tab (see figure 3).

1. Enter a symbol, then select the icon and go back to any date.
2. From the Option Chain, select a bid or ask to buy, and sell just as if you were trading in real time.
3. Fast-forward or rewind the data.

When you’re done, select OnDemand again to go back to your live trading account.

Give these tools a try. They could be a conversation starter when you next chat about trading options.