The Matrix
Portal to a Wealth of Information

The Matrix is your "home base" for working with an asset, watching specific markets, and analyzing prospective trades. View all of an asset’s options the way your mind likes to see them - with the expiration months across and the strikes down.

Here you will see vital data about actuals, futures, options, and your total position. Everything in the Matrix is about what is happening in the options based on 20-minute delayed data.

The Matrix is packed with information that is valuable to “what-ifing” prospective trades. Here you can enter existing and/or contemplated positions and graphically analyze them.

Formatting
The Matrix is organized into 4 sections: The Actuals (if any) at the top, then the Futures (if any), the Options, and the Summary section at the bottom. The Summary section is constant in size and format. The Actuals, Futures, and Options sections are flexible as to size, format and content.

The Actuals section appears when one or more actuals are defined. Within this section the base actual comes first, the related actual (if any) comes next, and convertible securities (if any), farther to the right.

The Futures section appears when one or more futures contracts are defined. Within this section the nearby futures contract comes first, followed by increasing contract months to the right. The numbers in angle brackets (in the month headings) indicate the days remaining until first delivery.

In the Options section, the nearby month comes first, followed by farther months to the right. The numbers in angle brackets (in the month headings) indicate the days remaining until expiration. Strike prices, indicated at the left, are usually arranged in descending order. An angle mark indicates the nearest-the-money strike.

Within the Options section, calls are displayed in the top section and puts in the bottom section, with a dividing line between them.

The Matrix groups parameters into cells. Each cell represents an individual item (e.g. option, future, stock, etc.). To see cell layout, click the Legend button. Here is how data is displayed within each section:

Cell Parameters

Last (Last)
The “last trade” price for this item. Last fields are special in some ways:

If the option has not traded today, the Matrix displays “..r..” in the Last field. You should seldom see this in nearby months, but the quotes retrieval activity often puts r’s in the Last field.

When you see an “..f..” in Last, Bid or Asked, it means an incoming price from our data service was so different from theoretical value the Matrix rejected and filtered out the price.

Change (Chg), Bid (Bid), Asked (Asked), High (High), Low (Low), Volume (Volume)
These are all standard terms in the industry.

Symbol
This is the symbol for this item.

Trade
This is your contemplated trade in this option - positive for a long position or negative for a short position.

At Price
When you enter a prospective trade into the Trade field, an “At” price will be automatically computed and displayed. It is the price at which the system expects you can actually execute the trade, after taking into account the current bid/asked prices, if available.

Mid Implied Volatility (MIV)
Implied volatility is what the current option price says about the volatility of the underlying. Although you may hear the phrase “an option’s volatility”, it must be understood that it is always the volatility of the underlying itself that is being inferred. The option is only making the statement.

This particular volatility, Mid Implied Volatility (midpoint between bid and asked), is computed using the Market Price of an option. You can think of implied volatility as the options pricing model being worked “backwards” to determine volatility, normally one of the key inputs in any options pricing formula.

In truth, pricing models cannot be inverted and solved for volatility. Implied volatility has to be derived by working the pricing model “forward” repeatedly, experimenting intelligently with different volatilities, until the theoretical option price converges with actual market price.

Implied volatility is computed for all options which meet the following criteria:

• There has to be a representative Market Price for the option.
• The strike price must be within 80% of the price of the underlying.
• The option must have 2 or more remaining days of life.
• There must be at least 3 minimum ticks worth of time premium in it.
• The option must have an ITM Factor greater than -0.275.

MIV is the most useful indicator of over- and under-valuation for an option. When you see an option that has a MIV of 28% among an array of options that are mostly around 19%, you know you have an overpriced option.

The Summary Section

When you have a position in the Matrix, the Summary section displays the margin requirements, cash flow, and total “greeks” for the position.

The Summary section will also show you the current value and gain/loss for your existing position in this asset, plus the average implied volatility and the put/call volume ratio for this asset.

An “Unknown” in any field of the Summary Section indicates you have a position in an item for which there is no market price.

Net and Gross Requirements
The first two columns in the summary section are the Net and Gross requirements for the total position you are looking at. The Matrix then shows you the initial (Init) and maintenance (Maint) requirements for both of these, plus the percentage of the cash flow received, if any, to the initial requirement (Cash/Init).

Initial Gross Requirements
This is the margin required for the position on the day you opened it. When working with actuals-based or cash-based options, it is computed according to the standard rules for securities collateral requirements. When working with futures-based options, it is computed according to SPAN.

Maintenance Gross Requirements
This is the margin requirement for maintaining the position after the first day.

Net Requirements
Net requirements are the gross requirements minus the Cash Flow. For positions that do not require margin, this is just the cost to place the trade.

Cash/Init
This is the percentage of the cash flow (or credit) received to the initial cost of the position. For net debit trades, Gross Cash/Init will be blank and Net Cash/Init will be -1.00, indicating you are putting up all the cash required for this trade out of your own pocket.

Cash Flow
Cash flow is the net cash flow from opening the position. A positive cash flow indicates money flowing into your account; a negative cash flow indicates money flowing out of your account.

Current Value (Cur. Value)
Current value is simply the summation market price times the number of contracts of each item in your existing position(s) in this asset.

Gain/Loss
This is the cost (or credit) of your total existing position, minus its current market value.

Commissions (Commis)
Not applicable. Available in OptionVue 5 only.

Delta, Gamma, Theta, and Vega
The fields for these derivative parameters are for the total position you are currently analyzing.

For example, Delta is the delta of your whole position in this asset including all the options, futures, the base actual, the related actual, and convertible securities, if any. For a one point increase in the price of the underlying, this is how much money you would theoretically gain (if positive) or lose (if negative) on the position as a whole.

Average IV (Avg.IV)
Average Market-Implied Volatility. This is a weighted average Mid-Implied Volatility (MIV) for all options in the Matrix that have an MIV (as we discussed earlier, MIV may not be computed for all options). Weighting is according to dollar volume (price x volume), so that options with the greatest dollar volume of trading receive the greatest weight. This is just today’s reading only, like everything in the Matrix.

Calls.IV, Puts.IV
Calls.IV: This is today’s weighted average IV for all call options.
Puts.IV: This is today’s weighted average IV for all put options.

Put/Call Ratio (P/C (Vol)
The Put/Call Volume ratio for this asset. It is the 4-day average put volume divided by the 4-day average call volume. Traders use this to gauge market sentiment.

Analysis

Assessing Prospective Trade Performance
The most important element of options trading is effective risk management and analyzing risk vs. reward. The Analyze function gives you the ability to see your positions graphically so you can obtain a visual feel for the potential returns and risk of your investment. Dividends and interest cash flows are all taken into account.

Graphically analyzing a position is fairly simple. All you do is enter your position into the Matrix and click Analyze to see a graph representing the performance of your position across a range of future underlying prices. The different lines in the graph show how your position will perform at different projected dates.

Graphic Analysis Window
Each graph charts three lines, each representing the performance of your position at different projected dates. The line legend shows precisely how many days out each line represents. To determine the date each line represents, the program divides the number of days to Expiration by the number of lines (3).

The Graphic Analysis starts with the current price of the underlying in the center, and approximately a two standard deviation price range along the horizontal axis.

Numeric Readouts
In the lower left, and stretching out along the bottom of the screen, are numeric readouts corresponding to the currently selected (highlighted) graph line. The farthest projection date is always the line highlighted when you first analyze a position. To select a different line, simply click on the line itself in the graph, or on the date it represents in the line legend.

The program shows the projected P/L (profit/loss), Delta, Gamma, Theta, and Vega for the currently selected line at each price interval. Each of these numbers corresponds to the price on the horizontal axis directly above it.

The information in the bottom-left corner tells you exactly what you are looking at. The date you are projecting, the volatility change you have projected, and the amount of capital provided. Below this the expected return (E.R.), standard deviation of returns (+/-), your break-even point(s) (B.E.), and the probability of profit (P.P.). Expected return, standard deviation of returns, and probability of profit figures are based on a bell curve price projection centered on today’s price.

Also associated with the currently selected line are the colored bars just inside the graph area, along the bottom. These represent the first (fuchsia) and second (aqua) standard deviations of probable underlying price distributions, based on volatility and time projection. If you select a line representing a closer time projection, you should see the colored bars shrink, because the probability distribution is narrower. If you select the line representing today’s projection, the colored bars will disappear because with no time, there can be no probability distribution.

The volatility for computing the following —

• Probability of Profit
• 1st and 2nd standard deviation bars beneath the Graphic Analysis
• Expected Return and Standard Deviation in the lower left area of Graphic Analysis

— is determined as follows: Using a “bell” target for an asset, Graphic Analysis uses the volatility associated with the target. Otherwise, the program uses the recent SV, if available. If SV is unavailable, the program uses current Grand Average IV.

Analyzing Another Case
You can analyze another case by returning to the Matrix, entering a modified or different position, and clicking Analyze again.