How to read graphs

From iOptioneer - an advanced option trading reference for iPhone

iOptioneer can build a lot of different graphs for each option strategy, sometimes they may look very complicated. Here is a short run-through of various graphs, as an example we use a diagonal call spread.

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The green line is the main curve, it plots the current operation value for the current parameter, by default it plots the value (the PnL) of the diagonal call spread against the base contract price. Let's trace the value as it changes from 9.5 to 12, you can do it by tapping and holding anywhere on the graph: Switch2Parameter|ParamBasePrice|Switch2Operation|OpValue|Animate2Value|ParamBasePrice|12. As you can see, while the base price increases, the combination becomes cheaper.

The thin grey lines that you can see on most graphs are leg curves, they show the same value plotted against the same parameter for each of the legs which make up the strategy. Each leg curve is tagged with the instrument name and position size. The horizontal red line is the zero line, all values above it are positive PnL or value, and where the zero line crosses the graph, the strategy breaks even.

Base price is one of a few parameters that you can change in order to simulate different situations, and now it is the current parameter, you see base price highlighted in the list of parameters, but you can choose any other parameter as the current parameter by tapping and holding till it's selected, let's switch to the second parameter called day: Switch2Operation|OpValue|Switch2Parameter|ParamDaysOffset|Set2Value|ParamBasePrice|9.5|Shake. Now the main curve shows how the value of the strategy changes with the passage of time Set2Value|ParamDaysOffset|0|Switch2Operation|OpValue|Switch2Parameter|ParamDaysOffset|Animate2Value|ParamDaysOffset|10, it increases reaching maximum before the near expiry and then starts decreasing smoothly.

But what if we want to study the changes to the day and the base price at the same time? You can start changing the base price without switching to it, just tap on base price once and use the slider, an orange copy of the main graph will show how this change affects the value against day plot, it will move like this: Switch2Operation|OpValue|Switch2Parameter|ParamDaysOffset|Set2Value|ParamBasePrice|9.5|Animate2Value|ParamBasePrice|10.1.

Apart from PnL or value there are other operations available, which you can select using the table in the upper left corner of the graph (by tapping and holding it). For an exaplanation of operations, please see the article on greeks. As an example, let's plot the gamma of the combination against time: Switch2Operation|OpGamma|Switch2Parameter|ParamDaysOffset|Set2Value|ParamBasePrice|9.5|Shake. As you see, gamma is negative before the near expiry but immediately preceding it becomes positive.

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The screenshot shows the following portfolio:




European call struck at 10.000 with expiry in 30 days


European call struck at 11.000 with expiry in 90 days

This is an excerpt from iOptioneer option trading reference application. In order to build the real-time dynamic strategy graph and run simulations you will need to download the application from App Store.

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