Useful thinkorswim tools you can use are the Heat Map, volatility calculation and Mobile Trader. Find out which stocks are moving, different ways to calculate volatility and share charts on Mobile Trader.
What’s driving an index, and what could potentially drive your next trade? Stocks, of course! But because the stocks of some companies make up much more of a given index than others, they can take the driver’s seat and massively influence their corresponding index’s value. The thinkorswim® Heat Map shows you just how big these stocks are relative to the index’s value, which could give you some ideas for the next generation of a “FAANG” gang.
FIGURE 1: HEAT MAP. The bigger the company, the bigger the square. Green means the stock price is up, and red means it’s down. The more intense the color, the larger the price move. Source: thinkorswim from TD Ameritrade. For illustrative purposes only. Specific securities appearing in educational examples are not a recommendation to buy, sell, or hold any security.
Once you have an idea of which stocks are influencing an index, you can compare how the stock is moving relative to its index. One way is to use the comparison feature in the Charts tab of thinkorswim. Overlaying the index chart on a stock chart can help you identify if the stock is underperforming or outperforming an index.
This information can play a role in your decision to trade an index or stock that drives an index. Consider this a starting step, and perhaps add other factors, such as implied volatilities, that might help drive your decisions.
There’s no such thing as certainty in the options world. Implied volatilities (IVs) are independent from one options cycle to another. Changing IVs, different price models (e.g., Black-Scholes), and time decay can change the P&L of your trades. So it’s a good idea to spend time analyzing potential trades and figuring out how different volatility calculations affect them.
On the thinkorswim platform from TD Ameritrade you have a few choices for volatility calculation modes. The platform defaults to “individual implied volatility,” but there are two other modes: “volatility smile approximation” and “fixed volatility per expiration date.”
From the Setup menu in the top right of thinkorswim (gear icon), select “Application Settings …” and you’ll see a screen that looks like the one in Figure 2.
FIGURE 2: WHICH VOL CALCULATION MODE SHOULD YOU USE? On your thinkorswim platform, from Application Settings, you can opt to use one of three vol calculation modes. Source: thinkorswim from TD Ameritrade. For illustrative purposes only.
Individual implied volatility uses a distinct implied volatility for each strike.
Volatility smile approximation accounts for skew in the out-of-the-money strikes, which tend to have inflated IVs.
Fixed volatility per expiration date shows theoretical prices if all options of a series were at the same vol level as the at-the-money options.
In the end, 99% of what you need is in the default volatility settings. But if you like to geek out with this stuff, and you feel your volatility settings are leading you astray, it might be worth playing around with this feature. One model isn’t necessarily more accurate than another. These are theoretical settings that can be helpful when analyzing potential positions.
You can step away from your desk, but you don’t have to step away from your trading.
Anytime, anywhere, fire up your Mobile Trader app and look to see what’s happening in the markets. As you casually glance through the charts of the symbols on your watch list, you may come across one that has the perfect setup you’ve been waiting for. You’ve just got to share it!
To share a chart (see Figure 3):
FIGURE 3: CHART SHARING ON MOBILE TRADER. Source: thinkorswim from TD Ameritrade. For illustrative purposes only.
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