User's Guide

Table of Contents
Legal Stuff .........................................................................................................1 The Workspace and Quotes Display .................................................................4 The Matrix .......................................................................................................11 Defining Information for an Asset.................................................................31 Modeling in the Matrix..................................................................................46 Graphic Analysis .............................................................................................71 Charts in OptionVue 6 .....................................................................................83 Portfolio Manager ............................................................................................94 Account Information.....................................................................................99 Transaction Log .........................................................................................109 Account Status...........................................................................................130 HedgeFinder ..........................................................................................140 Alert System...........................................................................................143 Reports ......................................................................................................149 The Trade Finder...........................................................................................159 The Survey Function .....................................................................................172 Probability Calculator ....................................................................................176 Proper Care and Feeding..............................................................................178 QuoteVue ..................................................................................................181 Importing and Exporting ASCII Data..........................................................190

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User's Guide BackTrader....................................................................................................200 OpScan .........................................................................................................205 Constructing OpScan Formulas.................................................................211 OpScan Operators and Parameters ..........................................................216 Built-in Formulas and OpScan Tips ...........................................................219 Value Sheets .................................................................................................224 Under The Hood - OptionVue6 Models .........................................................227 Option Pricing ............................................................................................227 Futures Pricing...........................................................................................229 Lognormal Price Forecasting and Analysis................................................233 Volatility .....................................................................................................236 Slippage.....................................................................................................240 Glossary of trading Terms .............................................................................242

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Legal Stuff
OptionVue Systems International 950 Technology Way, Suite 125 Libertyville, Illinois, 60048 Copyright 2009 All rights reserved. Information in this document is subject to change without notice. It is possible that it may contain technical or typographical errors. OptionVue Systems International provides this publication as is without warranty of any kind, either expressed or implied. The software described in this documentation is furnished under license agreement. The software may be used or copied only in accordance with the terms of this agreement. In no event shall OptionVue Systems International, Inc. be liable for any damages whatsoever (including, without limitation, damages for loss of profits, interruption or loss of information, or other incidental or consequential damages) arising out of the use of or the inability to use the OptionVue 6 software. Past performance does not guarantee future results. No part of this document may be reproduced or transmitted in any form or by any means, for any purpose, without the express written consent of OptionVue Systems International, Inc. OptionVue, OptionVue Research, DiscoverOptions, OptionVue Securities, OptionVue 5, OptionVue 6, DataVue, QuoteVue, NetVue, and OpScan are trademarks of OptionVue Systems International, Inc. Other brands and products are trademarks or registered trademarks of their respective holders. Program License Agreement Read this license before installing OptionVue 6. Installing OptionVue 6 indicates you have read and agree to the terms and conditions of this License, as described below. The License: In consideration of full payment for OptionVue 6 (the Software) and its related documentation (the Documentation), OptionVue Systems International (OptionVue) grants you a non-exclusive license to use the Software in accordance with the terms of this license. You acquire no title or ownership rights to the Software by this transaction and ALL SALES ARE FINAL. You agree that all and every part of the Software and Documentation are valuable property of OptionVue, protected by copyright law and agree not to take any action that shall violate that protection. 1

User's Guide Use of the Product: You assume responsibility for the selection of this Software, its installation, use and the achievement of your intended results by using the Software. This license is granted to one user only. The Software may be installed on more than one computer for the convenience of that one user, but it may not be shared with other users or run on more than one computer at a time. If its intended use is for more than one user you must buy an additional license or licenses for each. You may copy this Software into machine-readable form for backup purposes to protect your investment. You may not copy it for any other purpose. You may not lease, rent or distribute the Software or Documentation. You may transfer the Software and Documentation together with this License Agreement, with or without consideration, to another party, but only if the other party agrees to fully accept the terms and conditions of this License Agreement. You must notify OptionVue Systems within ten (10) days of the transfer and provide the name, address and phone number of the other party. You may not modify, alter, adapt, merge, recompile, disassemble or reverse engineer the Software or Documentation. Limited Warranty and Liability: OptionVue warrants that the Software will perform substantially in accordance with the Documentation for a period of ninety (90) days from the date of delivery (the Warranty Period). OptionVue does not warrant that the functions contained in the Software and Documentation will meet your requirements or that the operation of the Software will be uninterrupted or error free. Except as noted above, OptionVue makes no express warranties and disclaims all implied warranties with regard to OptionVue 6 including, but not limited to, the implied warranties of merchantability and fitness for a particular purpose. Remedies: OptionVue's entire liability and your exclusive remedy shall be the replacement of the product within the Warranty Period. In no event will OptionVue be liable for, and buyer waives all claims against OptionVue for, any consequential, incidental or indirect damages, including without limitation, any claim by any third party, any loss of data, any loss of profits, or any lost savings arising out of the use or inability to use the Software or Documentation. This shall hold even if OptionVue has been advised of the possibility of such damages by any other party. 2

Getting Assistance with OptionVue 6

OptionVue Systems offers a number of different ways to get the answers to any questions you may have about the OptionVue 6 software and its operation. Online Help System. Choose Help from the main menu and select OptionVue 6 to bring up a comprehensive online help system. Use this as you would any Windows Help system. Help Mode within OptionVue 6. Most windows and dialogs have a question mark button. Click this button and it will stay down. Your cursor becomes a question mark, and clicking on any item in the active window will give you a short explanation of that item. You can also get help on any currently focused item simply by pressing the [F1] key on your keyboard. Online Support. The Support section of our website includes an extensive knowledge data base of common questions. Live Product and Technical Support. OptionVue Systems has a world-class team of computer and options experts who can help you. Make sure you dont overlook the friendly and knowledgeable support available to our customers for a reasonable fee at 847-816-6610. If you have a question, we have an answer! Educational Resources. Successful option trading requires a long-term commitment to education. Educational information is available from our monthly eInformer newsletter, online classes, live seminars throughout the US, 1-on-1 mentoring courses, plus options trading books and CDs. Our DiscoverOptions website contains a wealth of free educational articles and webcasts as well. Books. For the largest selection of trading books available in the world visit the OptionVue Bookstore. Our software is continually being improved. From time to time, new versions of the program are offered to current owners for a modest upgrade fee. Look into our STAR subscriptions that include all upgrades as they become available. OptionVue 6 has many features that make it unique among options software products. However, the true test of this products usefulness is whether it helps you trade options. If you think of ways the product might be improved, please let us know. Many of the ideas for improvements and enhancements to the software come from customers like you that use the program in real-world trading situations. Ideas and suggestions can be sent be email to OptionVue Systems at: feedback@OptionVue.com. 3

User's Guide

The Workspace and Quotes Display

OptionVue 6 opens into a workspace with a main menu, toolbar and icons along the top that give you access to all the main features and functions of the program. Below this, the Quotes Display is always in the main workspace when you start OptionVue 6. The Quotes Display gives you an overview of the markets and can be easily customized to fit your individual trading needs. This is where you set up the assets you want to follow.

You can choose between two different background colors for the Quotes Display by selecting File | Preferences from the main menu, and clicking on the Colors Tab. You can resize the Quotes Display by dragging its boundaries and all changes are automatically saved. A nice feature of the Quotes Display is that prices are displayed in their native format: fractions or decimals. The program automatically aligns columns of numbers by decimal point (or space, in the case of fractions) which is much better than just centering everything.

Entering Symbols
The Quotes Display functions much like any other quotes display you may have seen before. The symbols of your favorite indexes, stocks, futures contracts, etc., are entered under the "Symbol" heading. It is important to use proper symbols in the Quotes Display. All indexes must be entered with a leading $ 4

character. Enter all futures contracts with the base symbol, followed by a space, then the month code and the year code (you can follow examples already there). While it is not common, you can also enter option symbols in the Quotes Display. All index and equity options must have a space between the root symbol and the final two characters. Enter all futures options symbols exactly as shown in their Matrixes. One or more symbols can be pasted from the clipboard (from outside OptionVue 6) into the Quotes Display by choosing Edit | Paste Symbol(s) in the main menu. The new symbol(s) are inserted at the current cursor position. The Quotes Display will show the letter 'O, 'S', or 'F' near the symbol showing if you have a position in the options, stock or futures contract respectively. If your position is in the currently active account, the letter is displayed boldly. Otherwise it is displayed faintly. Click on the letter and the program displays the names of the account(s) in which you have a position in this symbol. Select one of the accounts and the program instantly makes that the active account.

Looking up Unknown Symbols

If you are not sure of the symbol for an asset, a list of all optionable assets and their symbols is available by selecting Edit | Look Up from the main menu.

Begin typing the assets name in the name field. When the asset you want appears in the list below, select it from the list and click the Insert button (or double-click on that line) to insert the asset into the Quotes Display just beneath the currently selected row. Or, if you want to add the asset to a specific group on 5

User's Guide your Quotes Display, right-click on the line and choose the group from the context sensitive menu. When you are done, clicking the Close button will minimize this dialog box to the bottom of the workspace for quick access later. Clicking the (X) button in the upper-right corner closes the dialog box completely.

Managing Rows and Columns in the Quotes Display

To add a new (blank) row into the Quotes Display, simply click anywhere within the row you want to add a new row above, and press the [Insert] key on your keyboard or select Edit | Insert Row from the main menu. To delete a row, select the row you want to remove and press the [Delete] key on your keyboard. Pressing the down arrow key when at the bottom of the page will open up more blank rows there. You can also move a row item within the Quotes Display by holding down your left mouse button and dragging it to the desired location. Adding and deleting columns in the Quotes Display works much the same way as the rows. To insert a column, select the heading of the column you want to add a column in front of, and press the [Insert] key on your keyboard, or select Edit | Insert Column from the main menu. To remove a column, select the column heading you want to remove (so that it is highlighted) and press the [Delete] key on your keyboard. You can move a column by dragging it to the desired location, or resize a column by dragging its right boundary until the column is the width that you prefer. To choose what information is displayed in a column, either double-click or rightclick on the column header and make your choice from the available fields. Most parameters available are self-explanatory and follow normal industry definitions.

The Notes parameter allows you to make personalized notes on each asset. Just right-click in the blank notes field in the same line of the asset you want to make a notation for and type your notes in. Price Off Extreme is how far above the day's Low, or how far below the day's High, the Last trade was. Price Off Extreme automatically switches to display 6

whichever extreme the Last price is closer to. If the Last is closer to Low than to High, Price Off Extreme shows a positive number indicating how far off the day's Low the Last is. If the Last is closer to High than to Low, Price Off Extreme shows a negative number indicating how far off the day's High Last is. Time Off Extreme shows how much time has transpired since a new low or a new high was set today. News. This column displays a News link for every stock in your Quotes Display. Clicking this link opens a browser and takes you directly to the news headlines on that particular company. By default the program uses Yahoo Finance as its news site. However, you may change this to your favorite news service in File | Preferences, under the first Misc tab. Click on the News Site button and you can enter the URL of your preferred news site. Be sure to insert <symbol> in the position where the individual stock symbol is supposed to go.

Printing and Backing up the Quotes Display

A button in the upper-left corner of the Quotes Display allows you to print the entire contents of the Quotes Display, including off-screen items, either to the printer or a comma delimited text file. You can also print a screen snapshot by clicking on the snapshot print button in the upper-right corner of the main window. Next to the Print button is a button that instantly saves the contents of the Quotes Display. The image on the button is that of a floppy disk. Alternate ways to save include pressing Ctrl+S and selecting File | Save from the main menu. After making a lot of changes to the Quotes Display, you may want to consider clicking this button just to ensure your changes are saved permanently. The program also automatically backs up your Quotes Display file (which is named Quotes.col) and Quotes Display notes file (which is named Quotes.nts). The first time OptionVue 6 is started each day, it copies the Quotes.col file to a file called Quotes.bk1 file (after copying the Quotes.bk1 file to Quotes.bk2 file). It also copies Quotes.nts to Quotes.nk1 after copying Quotes.nk1 to Quotes.nk2. To restore an earlier version of your Quotes Display, delete the current (problem) file and rename the bk1 or bk2 files (whichever you need) to Quotes.col and Quotes.nts. These files are located under the main /Program Files/OptionVue 6 directory and can be accessed by using Windows Explorer.

Grouping and Sorting Items

You probably noticed when you first opened the program that the indices, stocks, and futures were separated by shaded group heading bars labeled with those names that extended across the entire Quotes Display. Group header names are limited to displaying 79 characters. 7

User's Guide If you dont want to type over an existing heading or symbol, make sure that you insert a blank row first. To delete a group heading bar, click on it to select it (so it is highlighted) and press the [Delete] key on your keyboard. You can easily create and name your own customized groups on the Quotes Display. To enter a new group heading bar, start by typing a # character, followed by the name you want for that group, in the first column where you would usually type in your symbols. You will see the # character while you are typing, but when you are finished, the # disappears and the program centers the heading name in a bar extending across the entire grid. You can sort the assets within a group by many of the different column parameters such as Last, Chg, Percent Change, Name, or Volume. To do this, simply right-click directly on the group header bar within the column. That will cause the group to be quickly sorted according to the information in the column you clicked on. You can sort the symbols of a particular group alphabetically this way, but there is also a little "A at the far right of every group header bar. Clicking on the 'A' not only sorts the section alphabetically, but will also automatically remove any duplicate symbols in that group. If you right click on a group header within the Price Off Extreme column, the program has a special way to sort the group, rather than simply by the magnitude of the price change. It puts the smallest negative number first, and then proceeds into more negative numbers. Once all of the negative numbers have been listed, it jumps to the largest positive number. From there, it lists positive numbers in descending order. This way, the program brings issues that are pushing the envelope to the upside to the top of the list, while putting issues that are pushing the envelope to the downside at the bottom of the list. Grouping items in the Quotes Display plays a useful role throughout the program. In functions we will go over later such as Survey, Trade Finder, and updating files you will be able to import all the assets in a particular group with the single click of a button.

Behind the Symbols

Behind each item in the Quotes Display, the program holds some underlying information. To see this information, right-click on an items symbol in the Quotes Display to bring up the Properties dialog.

The information for an item will fill in automatically when you enter a new symbol in the Quotes Display. Using clues from the symbol you enter, the program will determine the Item Type. Available item types are stock, index, bond, commodity, and currency. The program will also determine the likely smallest tick. If you ever see an item quoted decimally when it should be quoted fractionally, or vice versa, you can correct it here in the Smallest Tick field. Besides filling in the Item Type and Smallest Tick fields, the program also makes an educated guess as to the asset associated with this item. It will use this symbol when accessing the asset-specific functions; the Matrix, Price Chart, and Volty Chart. If this asset is incorrect, you can point the item to a different asset by changing this symbol. You specify an asset by both Base Symbol and Type. To the right are two buttons one for deleting the asset file and one for deleting the price chart file. You can also set price and volume alerts for this asset. No position in the asset is necessary. Simply click on the Set New Price/Volume Alert button and the program opens the Alert Properties window with the symbol filled in automatically.

The Main Menu and Toolbar

The main menu is located along the top of the workspace. The choices available are File, Edit, View, Window, NetVue, and Help. Selecting one of these displays a drop-down menu that allows you to directly access many of the features and functions in OptionVue 6. Below this is the main toolbar, giving you one-click access to all the main functions in the program. The first three buttons located on the main toolbar are the asset-specific functions: Matrix, Price Chart, and Volty Chart. 9

User's Guide

These functions offer a wealth of information about each individual asset and its options. Simply select an item in the Quotes Display (so that line is highlighted) and then click on one of these buttons to open that assets Matrix, Price Chart, or Volty Chart. You can choose which asset-specific function automatically opens when you double-click on an item in the Quotes Display under File | Preferences in the Settings tab. The program default is to open a Matrix. The next group of buttons on the main toolbar is for the Portfolio Manager: Info, T.Log, Status, and Reports. The name of the currently selected account is displayed above these buttons. Clicking on the account name displays a dropdown menu containing the name of all the accounts you have set up. Selecting any of these changes the account to another account, which then becomes the currently active account you are working in. The next group of buttons is labeled the Auto-Scan Tools: TradeFinder, Survey, and OpScan. The functions are all designed to help you find the best potential trading opportunities. Following these are the Prob (for probability calculator) and Trade buttons. The Probability Calculator allows you to see the probability of certain prices occurring based on a given price, future volatility, and date. The Trade button can be set to either automatically export trades to a compatible trading application, or to open a new browser window directly to your favorite Internet site. Following the Trade button is the Browse feature. Browse allows you to quickly flip through all your favorite assets in succession. To use this feature, first open a Matrix, Price Chart, or Volty Chart window, then watch the window switch to the next asset as you click the Next button, or to the previous asset when you click the Prev button. The Browse feature can be used in the Quotes Display, Account Status, the Trade Finder, Survey, OpScan Reports, and the Yates Break Search. When browsing Price Charts or Volty Charts, the program will remember the wand position from chart to chart. To the far right is a group of icons and the Logo for OptionVue Systems. Clicking on the Logo (the green ball) accesses the continuous data interface (for use with compatible data feeds). The other icons (in order from the top left icon to the bottom right) are for the Yates Break Search, Earnings Search, the Message Log, Screen Print, Alerts, and the Scheduling Agent. We will go into considerable detail about all of the functions and features that are accessed through the main menu and main toolbar throughout this User's Guide. 10

The Matrix Portal to a Wealth of Information

The Matrix is home to an asset - one asset per Matrix. This is your "home base" for working with an asset, watching specific markets, and analyzing prospective trades. View all of an assets 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. You set up the Matrix cells to display precisely the information you want to see. Double-click on any item to see all the parameters in the "Expand" window. What-ifing prospective trades is a breeze; just enter the number of contracts and view instant computations about the trade in the Summary. Everything in the Matrix is about what is happening right now. So commission calculations that you see in the Matrix are for the opening transaction(s) only. The Matrix is packed with information that is valuable to your trading. Here you can enter existing and/or contemplated new positions and graphically analyze them. The Matrix can be used by a wide variety of investors with different needs and approaches to options trading. In order to appeal to such a wide audience, the Matrix is rich in many features and capabilities. This richness may be intimidating at first, but the Matrix is designed so that you can use just the features you need and ignore the others until your needs expand. 11

User's Guide When you open a Matrix, the asset file is loaded automatically. If it is the first time that specific asset has been opened, youll see a brief message Starting new asset file" as the program creates the new asset for you. When a Matrix is closed, all its information is saved to the asset file. If you ever need to close a matrix without saving it, click on the X box in the upper-right hand corner, and answer No to the question Save Changes?. If you are working with continuous quotes it takes a moment for the Matrix to update itself after it is opened. During that time it displays the message [Updating] in the Matrix title bar to let you know quotes are just coming in. 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. Whatever room is left after displaying the actuals and the futures is used for the options. For this reason it is often best to minimize the actuals and futures information so you can see as much information as possible on the options. The Matrix always shows which volatility model is being used for that asset. The words "Volty Model:", followed by Variable, Uniform, or Manual (as appropriate) appear in the lower right corner of the Matrix, just above the summary section.

The Actuals Section

The Actuals section is displayed 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) are the farthest to the right.

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The Futures Section

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.

The Options Section

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.

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User's Guide Weekly options are titled "WKLY" with the number of days to expiration. Quarterly options have the month followed the letter "Q" with the number of days to expiration (i.e. Mar Q <72>). Strike prices, indicated at the left, are usually arranged in descending order. However, these can be switched to ascending order if you prefer (click the Format button). 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 movable dividing line between them. Drag this dividing line upwards or downwards to reveal more puts than calls, or vice versa. When LEAPs are involved, whole rows may appear to be grayed out, until you scroll right and see that strike was needed only for LEAPS.

Stepper Buttons
In the upper-right corner of the Matrix (next to the Close button), as well as in the lower part of the Expand window, you will see the Stepper Buttons available.

If you focus on a user-changeable field (click on it so that is highlighted) and then click the stepper buttons, it will increase or decrease the field contents one step at a time. This can be helpful when you need to try different trade quantities until you find the quantity you can afford, or that makes your position delta neutral. When the little slide bar is at the left, the steps are as small as they can be. For moderate or large steps, slide the bar to the middle or far right. Besides the stepper buttons, you can also step numeric and date fields using the left and right square bracket keys on your keyboard. For moderate steps, hold down Shift with them. For larger steps press the left and right angle keys ( < > ).

The Legend Button

There are no column headers in the Matrix to tell you what parameters you are looking at. That is because we prefer to display as much information as possible. A Legend of the displayed parameters can be turned on or off by clicking on the Legend button. Clicking this button toggles the Legend on and off as a mode, meaning the program remembers the last setting you used. A checkbox determines whether the Legend is on or off by default when you first open a Matrix. This setting is found under File | Preferences in the main menu under the first Misc tab. The current state of the Legend when you close a Matrix is copied into this checkbox to become the new default.

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The Legend function is designed so that it does not overwrite any more information than it has to. This was accomplished by making the Legend for each Matrix section appear on the right as far as possible. The only exception is when you select a 1x? cell format for the options, in which case the Legend for the options section repeats across the whole top row. Pressing the L key on your keyboard toggles legend on and off in the same way as clicking the button.

Matrix Function Buttons

To the far right beneath the Close button is a group of four small buttons. The top left one has a picture of a pointing hand. Clicking on this button will hide the Matrix toolbar. This is designed to allow you to free up space to show more option strikes. To show the Matrix toolbar again, click the same button. To the right of this is the ClearMatrix button. This allows to clear data such as prices, existing positions, opening trades and original prices from the Matrix. The bottom left button is a Matrix print button that prints all information, including those assets and options you cannot see on the screen. This comes out as a specially formatted report, which can also be used with the "Print to file" feature in Windows if you want to save the information in a text or comma-delimited file. You can also get a snapshot of just what you see on the screen by clicking the Print button in the Main toolbar. The final button has a question mark. Click this button and your cursor becomes a question mark. Then click on various parts of the program to get a brief description of the item.

Formatting the Matrix

In the Getting Started Guide, we discussed how the Matrix groups parameters into cells. Each cell represents an individual item (e.g. an option, a futures contract, a stock, etc.). OptionVue 6 can display a legend in each section to remind you what the cell layout is. To see the current cell layout, click on the Legend button, or hold down the letter L on your keyboard. You can set up to three different Matrix formats that can be stored to use as the default formats throughout the program by selecting View | Default Matrix Format in the main menu. You can also override these global settings within the Matrix to set up different preferences for an individual asset. Click the Format button in the Matrix to change the parameters and cell sizes for this asset only. Also in the Format dialog, you can change the strike order for the calls and puts, as well as customize the bottom Matrix Summary section. There are several different cell sizes to choose from and a large number of parameters available for 15

User's Guide display in the Matrix. In each of these drop-down boxes, the parameters are listed alphabetically.

Setting and Getting Default Formats

There are three default Matrix formats stored system-wide (not asset specific) under View | Default Matrix Format. These are accessible both here in the Format dialog and in the Matrix itself. After you settle on the Matrix formats you prefer with the majority of your assets, save them here as your global defaults. Newly created assets automatically pick up global default Matrix format 1. To see the formats you currently have set, click on the 1, 2, or 3 buttons under Get Default. Now you can change cell sizes, parameters, etc. You can then make any changes you want. To save your changes as one of the three global defaults, click the matching 1, 2, or 3 button under Set Default. Then click OK. This saves the new format. 16

To the right of these buttons is another button labeled Get Base Default. This allows you to go back to the original default formats of the Matrix that originally came with the program, if you so desire.

Short Cut Format Change

There is also a short cut to changing parameters within the Matrix that we first showed you in the Getting Started Guide. Right-click in the cell position you would like to change and pick the desired parameter from a list in the select parameter dialog. On the Matrix toolbar are four buttons labeled M, 1, 2, and 3. To store a favorite format directly from the Matrix, click the small "M" button and then the button with the number you want to save it under. To retrieve a stored format, and to change between formats, click the appropriate 1, 2, or 3 button. Remember, if you need to see the current layout you can always click on the Legend button.

The Expand Button

Often you will want to see everything about an actual, future, or option. Selecting any parameter in an item and pressing the Expand button will open an Expand window. You can also double-click on that items cell, or select an item and press the letter E on your keyboard.

The Expand window displays all the available parameters for that item. Changes made in the Expand window are immediately reflected in the Matrix, and vice versa. All Expand windows opened in a particular Matrix go away when you close the Matrix. 17

User's Guide When expanding an option, a field at the bottom of the Expand window allows you to enter a projected price for the underlying. When this is done, you will immediately see a freshly computed theoretical price and Greeks for that option. This is designed to help a trader set an appropriate target price for an option based on a projected price of the underlying. This projected underlying field is also available in the Spread window and works just as well for identifying a price target for a spread. Initially blank, you can type the letter T in the projected underlying field to pick up the current price of the underlying as a starting point. You can simply type prices in this field, or you can use the stepper buttons or keys to step the price up or down. A description of each parameter is contained in the Parameters Section.

The Spread Window

The Spread feature allows you to view the combined parameters of several different options at once in exactly the same layout as the Expand window. Although useful for all combinational strategies, we call it the Spread window since its benefits will probably be appreciated most by spread traders. You can open multiple Spread windows, and all Spread windows opened from a particular Matrix go away when you close the Matrix. Click on the Spread button and the Spread Setup window will open. Here you build a position by selecting (clicking in the cell) individual items from the Matrix and then clicking on the [+] button to indicate long or the [-] button to indicate short. You can add as many legs to the position as you like. The example below shows a vertical ratio spread in QQQQ call options.

You can click [+] or [-] repeatedly while on one item to create a ratioed combination. If youre not entering a ratioed combination, just enter +1 or -1 for each leg. To delete a leg, select it and click the Delete button. To clear the entire window, click the Clear button. 18

Once you have your spread position built, click on the Show Spread Window button. You will then see a window showing the combined prices of the position (including the combined bid/asked of the position!) and combined theoreticals.

Volumes and implied volatilities represent averages. All the other parameters are simply added (long legs) or subtracted (short legs). Trade and ExPos are the only fields you can change in a Spread window. In this example we considered buying 5 of these spreads (buying 5 of the QQQQ Jan 29 calls and selling 10 of the QQQQ Jan 30 calls). As soon as you enter a position in the Trade or ExPos fields, the program automatically transfer this into the Trade or ExPos fields of the Matrix for all the items in the position. This allows you to easily change the quantities of a combinational position until it meets the requirements you desire.

Parameter Descriptions
The list of parameters available for display in the Matrix is a long one. It includes last, change, bid, asked, market price, previous close, high, low, volume, average volume, open interest, time of last update, symbol, existing position, contemplated position, original price, at price, commissions, theoretical price, difference (between theoretical and last), probability of ending in the money, percent over/undervalued, time premium, bid implied volatility, asked implied volatility, mid implied volatility, delta, gamma, theta, vega, plus the delta, gamma, theta and vega for your position. Some of the parameters will have a white background indicating you can type information in this field. Other parameters have a grey background, indicating 19

User's Guide they are calculated by the program. You cannot manually input anything into these grayed out fields. The expand window contains four columns of parameters, all of which are available to display in the Matrix when you are creating your customized Matrix Formats. In the following sections we got through each parameter in the order they appear in the Expand window and explain exactly what they represent (with the on-screen abbreviation for the parameter in parenthesis, if necessary).

The Last Field

The first parameter in the first column is the Last field. Last displays the last trade price for this item. If you are manually entering Last trade prices into the Matrix, be sure you input them in this field (and not in the MktPr field). The Last field is also special in a number of ways, including the characters you may see displayed in the Last field along with useful features for helping you in situations where you cannot get a quoted price on an option. That is why we give it a section all to itself here. Option has not Traded Today. If the program displays an "..r.. in the Last field, it means the option has not traded today. You should seldom need to input this manually, but the quotes retrieval activity often puts rs in the Last field. However, if an option that did not previously exist becomes available, typing an 'r' in the Last field will reactivate the option. The cell will no longer be gray and the quotes will once again be requested for that option symbol. Option does not exist. If you press the letter "S while the cursor is in an options Last field the program fills the last field with an "..s... This means the option does not exist. The program then excludes this option from quotes retrieval and all analysis activities. When you are in the Matrix of a stock or index, after getting fresh prices, and assuming that it is well into the trading session, options that have a blank Last, Bid, Asked, Volume and Open Interest more than likely do not exist It is not uncommon for an asset to have non-existent options sprinkled throughout the Matrix. One way this happens is when the options of one expiration month are available on different strike intervals than options of another expiration month. For convenience, we made it so that pressing Ctrl-S causes the program to s out all options that have blank Last, Bid, Asked, Volume and Open Interest fields. This turns those cells gray, setting them apart and making it so the program does not request those non-existent options from the data service you work with. Theoretical Price (Fair Value). If you input the letter T while a Last field is selected, the program automatically fills in todays theoretical value for that item. 20

This is useful in cases where a price is not available, such as when it has not traded that day, or when you believe that the price picked up from your quote service does not accurately reflect the current market in the option. You can also change multiple Last fields at the same time in the Matrix. Pressing Ctrl-T with a Matrix open causes the program to copy the theoretical price into the Last fields of all the options (except those options marked with an "..s.., of course). Pressing Ctrl-W causes the program to copy the theoretical price only into the Last fields of options that do not contain a Last price (or "..s..). Option price filtered out. When you see an "..f.. in Last, Bid, or Asked fields it means an incoming price from a data service was so different from the theoretical price that the program rejected it and filtered out the price. The setting for the sensitivity of this filter can be viewed and changed by clicking on the Model button in the Matrix toolbar. A setting of 999%, which is the program default, turns the filter off completely.

First Column Parameters

Change (Chg). The difference between the Last and Prev parameters. Bid. The quoted Bid price for the item. Asked. The quoted Asked price (also referred to as the offer price) for the item. Market Price (MktPr). This parameter is derived according to the chosen setting from a combination of the Bid, Asked, and Last prices. It is an excellent way of representing the current price of an option in one single price in your Matrix. (This allows you to save room and see more option expiration months within the Matrix.) The default Market Price formula is: (10 x Bid + 10 x Asked + Last) / 21 This represents a weighted average of Bid, Asked and Last, with ten times the weight on Bid and Asked. If the Bid and Asked prices are not available, then Market Price equals Last. There are other Market Price formulas available. You can view them and select a different one by choosing View | Default Models from the main menu. For each option in the Matrix, if the Last price is "..r.. and the Bid and Asked prices are blank, the program displays "..r.. in the Market Price field as well. If the Last price is "..s.. and the bid and ask are blank, the program will display an "..s.. in the Market Price field. Note: If you are manually entering Last trade prices into the Matrix, be sure to put them in the Last fields, not the MktPr fields. High. Today's High price for the item 21

User's Guide

Low. Today's Low price for the item Previous (Prev). Yesterday's closing Last trade (or settlement) price. Volume. The number of contracts (or shares) traded today for the item Average Volume (Av.Vol). OptionVue 6 stores up to four trading days worth of volume figures on each item and then displays a straight average of these numbers. The average can only be calculated using data the program has received. If an asset file was just created today, there would be only one day of data available, so Average Volume would equal Volume. The next day, the program would use the two days of data available to calculate the average (and so on). This parameter is available only for options. Open Interest (O.I.). The number of open contracts for the item. This parameter is available only for futures and options contracts. Time. This is the time when OptionVue 6 last received an updated quote on this item. If the last time an updated quote was received on this item was different from today, this parameter will display the date rather than the time.

Second Column Parameters

Trade. In this field you input a contemplated opening trade in this option long or short, depending on whether you type in a positive or negative number. You enter a long position simply by typing in the number of contracts (or shares), and a short position by typing a minus (-) sign before the number. Positions entered into the Trade field cause the program to include an estimate of slippage on the opening trade, plus the opening trade commissions set in the currently selected account. Having separate fields for contemplated and existing positions allows you to consider additional trades in the item (such as when you make an adjustment) apart from the existing positions you have. At Price (At.Pr). When you enter a prospective trade into the Trade field, an "At Price" is automatically computed and displayed. It is the price at which the program expects you can actually execute the trade after taking into account the current Bid/Asked prices, if available, as well as your slippage settings for that asset. Existing Position (Exis.Pos). This is your existing long or short position, depending on whether the number is a positive or negative number. If you manually input a number here, you will also want to enter an original price for the existing position. With the Portfolio Manager active, the program will automatically transfer the existing positions and original prices from the transaction log of the currently selected account into these fields. If you make 22

temporary changes to these fields and would like to bring back your actual positions, press the letter "P" (for populate) on your keyboard. Original Price (OrigPr). This is the original price you paid (or received, if short) for an existing position. When you make a trade that adds to an already existing position, the Portfolio Manager will automatically calculate and display a weighted average of the new and old original prices as the current Original Price of your existing position.. For example, if you buy 5 option contracts today at a price of 4 and you previously bought 10 of the same option contracts at a price of 1, you should enter an original price of 2 (you have 15 contracts for which you paid a total of (5 x 4) + (10 x 1) = 30. i.e. the average price is 2). If you manually input an original price, the program will consider that to be the opening transaction price in all of its analyses and include an opening commission, if applicable. However, when you manually input an existing position and leave the original price field blank, the program will consider the current market price to be the opening transaction price in all of its analyses, and include no opening transaction commission. A special character, Ctrl-M, can be used in the Matrix to automatically copy Market Prices into Original Prices for all the actuals, futures, and options in which there is an existing position. This to prepare for doing a Graphic Analysis that represents the performance of the position from this point forward (excluding unrealized gains/losses up to this point). Commissions (Commis). This is the opening trade commission for this item. As discussed above, the program automatically computes this when you enter a position in the Trade field. The opening trade commission for Existing Positions are pulled directly from the commission field in the transaction log of the currently selected account. The program will also compute an opening trade commission when you manually input a position in the Existing Position field plus an Original Price. The commission schedule that is set for the currently selected account can be viewed and changed in the Account Information dialog (accessed by clicking the Info button on the main toolbar. (For more information refer to the sections: Futures Commissions and Securities Commissions) Exchange (Exch). This options parameter displays the exchanges where an options latest price quotes came from, using three letters that represent the Bid, Asked and Last prices, in that order. The letter codes are 'c for CBOE, 's for ISE, 'a for AMEX, 'x for PHLX, and 'p for PCX. So, for example, if the exchange field is shows "c s p", that means the Bid price came from the CBOE, the Asked price came from the ISE, and the Last trade price came from the PCX. 23

User's Guide Bid Size, Ask Size. These two parameters work in conjunction with the Exchange field and indicate the number of contracts that are associated with the displayed Bid and Asked prices, respectively.

Third Column Parameters

Theoretical Price (Th.Pr ). This is today's theoretical value for the item, often called "fair value" in the options trading industry. If the item is an option, theoretical price is computed based on the current price of the underlying. The program can also compute theoretical values for actuals and futures, provided there are other actuals or futures upon which to base the calculation. When actual(s) and future(s) are both present the powerful effect of the futures prices is taken into account. The fair value of the actual is based on the front month future, and the fair values of futures contracts other than the front month are based on the front month future. Note that the front month contract can be either the 1st or 2nd futures date available, whichever has the greater volume. Difference (Diff). This field displays the difference between Market Price and Theoretical Price. % Over/Undervalued (%O/U ). This field displays the percentage difference between the Market Price and the Theoretical Price. Time Premium (T.Prem). This is the observed time premium in the option, calculated as the Market Price minus the intrinsic value, if any. Mid Implied Volatility (MIV). Implied volatility is what the current market price of an option is saying about the volatility of the underlying. Although you may hear the phrase "an option's volatility", 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 (Mid stands for midpoint between bid and asked) is computed using the Market Price of the option. You can think of implied volatility as the options pricing model being worked "backwards" to determine volatility, which is normally one of the key inputs to the 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 price for the option converges with the actual market price. Implied volatility is computed from all options which meet the following criteria: 1. 2. 3. 4. 5. 24 There must be a representative Market Price for the option. The option's strike price must be within 80% of the price of the underlying. The option must have 2 or more remaining days of life. The option must have at least 15 cents 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. The percent over/undervalued indicator (%O/U) is useful, but its usefulness is limited because lower-priced options that show a large %O/U may be off by such as small amount (i.e. a penny or two) that you can't take advantage of them. But when you see an option that has an MIV of 28% among an array of options that are mostly around 19%, you know you have an overpriced option. Bid Implied Volatility (BIV). The implied volatility computed from the Bid price. Asked Implied Volatility (AIV). Implied volatility computed from the Ask price. Projected Volatility (Prj.Vty ). This parameters displays the volatility that the program has computed and assigned to this option, based on the programs volatility model. The program uses this volatility to compute the options theoretical price and all derivative parameters (the Greeks). Percent to Double (%Double). A measure of leverage, this is the percentage that the underlying has to move for this option to double in price. The smaller the number, the greater the leverage. Probability to Finish ITM (Prb.ITM). The computed probability of the option to finish in-the-money.

Fourth Column Parameters

Delta (Delta). For futures options, Delta is an item's hedge ratio times 100. For all other types of options, delta is an item's hedge ratio times its contract multiplier. Hedge ratio is, mathematically speaking, the first derivative of an item's price movement relative to the underlying's price movement on an instantaneous basis. In plain English, Delta for all non futures-based options is the dollar amount of gain or loss you should theoretically experience if the underlying goes up one full point. For example, a Delta of 50 means that if the underlying goes up one point, you should theoretically gain $50. Delta is always positive for call options and negative for put options. OptionVue 6 allows you to choose either Standard Delta or True Delta as a setting in the Models of the Matrix (or under View | Default Models to make this selection apply globally to all asset files). For a complete explanation of Standard and True Delta, see the section on Delta, Gamma - Modeling in the Matrix. For futures options, Delta is not expressed in dollar terms. Rather, it represents an equivalent number of underlying futures contracts times a simple factor of 100. For example, if you have an at-the-money option that moves 1/2 point when the underlying moves 1 point, that option's hedge ratio is 0.5. Taken times 100, 25

User's Guide OptionVue 6 will show its Delta as 50. Being long two such options, for example, would give you a Delta of 100, which is the equivalent of being long one futures contract. Delta Position (D.Pos). This is Delta times your existing position (in the Existing Position field) plus your contemplated position (in the Trade field) for this item. Gamma (Gamma). Gamma is the first derivative of Delta and expresses how fast Delta changes with a one point increase in the price of the underlying. Gamma is a useful indicator of upside/downside market advantage. All options have positive Gamma, which means that when the underlying moves in favor of a long position (up for calls, down for puts) the magnitude of the gain from the option is greater than the magnitude of the loss would be if the underlying were to make a similar move in the opposite direction. All options have positive Gamma because the price relationship curve for options -- whether they are puts or calls -- is always concave upward. All else being equal, you should favor long positions in high Gamma options. Unfortunately, the highest Gamma options usually also have the highest time decay factor, so you have to take that trade-off into account. Gamma Position (G.Pos). This is Gamma times your existing position (in the Existing Position field) plus your contemplated position (in the Trade field) for this item. If the underlying goes up one point, this is how much the Delta for the position will change. Theta (Theta). This is the daily drop in dollar value of an option due to the effect of time alone. Theta is dollars lost per day per contract. Theta Position (T.Pos). This is Theta times your existing position (in the Existing Position field) plus your contemplated position (in the Trade field) for this option. After one day goes by, this will be the dollar amount of your theoretical gain or loss in this position due to time alone. Alternatively, for futures options you can have the program compute Theta in units of the underlying instead of dollars. This would be done in the Models section (or globally for all assets by selecting View | Default Models from the main menu). Vega (Vega). Vega is the sensitivity of an option's price to changes in volatility. It is the dollar amount of gain or loss you should theoretically experience if volatility goes up one percentage point. Alternatively, for futures options you can have the program compute Vega in units of the underlying instead of dollars. This would be done in the Models section (or globally for all assets by selecting View | Default Models from the main menu). Vega Position (V.Pos). This is Vega times your existing position (in the Existing Position field) plus your contemplated position (in the Trade field) for this option. 26

If volatility goes up one percentage point, this will be the dollar amount of your theoretical gain or loss for this position. Rho. Rho measures sensitivity to changes in interest rates. It is the dollar amount of gain or loss you should theoretically experience for a one percentage point change in the risk-free interest rate. The parameters Rho (and Rho Position) are only available in the Professional Edition. Rho Position (R.Pos). This is Rho times your existing position (in the Existing Position field) plus your contemplated position (in the Trade field) for this option. If the risk-free interest rate goes up one percentage point, this will be the dollar amount of your theoretical gain or loss for this position.

Other Available Parameters

Symbol. The Symbol is displayed on the window header of the Expand window, rather than as a field within the window, for every item. But it is also an available parameter for display within the Matrix when creating your default Matrix formats, and is an available choice in the Select Parameter dialog when using the short cut format (by right-clicking on a column within the Matrix). Equivalent Shares (Eqv.Sh). This parameter is available only for actuals, and it is only meaningful when used with convertible securities. It represents the net position in common shares if your existing plus contemplated (Trade) position in the convertible security were converted to common.

The Matrix Summary Section

The Matrix Summary Section

When you have a position in the Matrix, the summary section displays the margin requirements, cash flow, estimated commissions, and total Greeks for the position. The summary section will also show you the current value and gain/loss for your positions in this asset, plus the average implied volatility and the put/call volume ratio for this asset.

In the upper-left corner of the summary section, the program displays the Volty model that is currently set for this asset: Variable, Uniform, or Manual. The Manual skew model is available only in the Professional edition of the software. 27

User's Guide With both existing and contemplated positions contained in the Matrix, the following box appears in the upper-left corner of the Summary Section. Click the Existing box to see figures for your existing position only. Click on the Trades box to see the figures for your contemplated position only. Click on the Both checkbox (which is the default) to see the figures for the combined positions.

With the Trades box checked, you will see the incremental effect of the trade youre considering. The margin requirements are not those of the contemplated trade; they are the total requirements of the combined position minus the requirements of your existing position. This is done in order to show you the incremental effect of the trade. If the effect of the contemplated trade is to lower overall margin requirements you will see a negative requirement for the trade. Note: If you want to see the stand-alone margins for only your contemplated trade, you must clear any existing positions from the Matrix temporarily. To do this, select Clear Matrix | Existing Positions from the main menu. The Matrix Summary Section also accounts for the header selection in the Matrix. Header selection is when you click on one expiration month header (or multiple months, by holding down the Ctrl key)causing them to change color. This tells the program to only include positions in the selected month(s) when it computes the summary information and for doing a Graphic Analysis (by clicking on the Analyze button). While the summary section is always there (you cannot turn it off), you can change what fields are displayed, and the order that they are displayed when you create your default Matrix formats. This can be done by clicking the Format button (for the change to apply to this asset only) or by selecting View | Default Matrix Format from the main menu (for the change to apply to all asset files). Let's go through each of the fields available in the Summary Section in detail.

Net and Gross Requirements

The first two columns in the summary section are for the Net and Gross margin requirements. The program shows you the Initial (Init), Maintenance (Maint), and Cash/Init for both Net and Gross. 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. Initial Requirement. This is the margin that is 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. 28

The user-changeable margin parameters are also considered in this. The gross requirements will be zero if no margin is required for the position. Maintenance Requirement. This is the ongoing margin requirement for maintaining the position after the first day. Cash/Init. The ratio of the cash flow received, if any, to the initial requirement. Note: For short stock positions, the Gross Requirement fields will show 150% (initial) and 130% (maintenance) of the value of the short stock.

Cash Flow, Current Value, Gain/Loss and Commissions

The third column in the Matrix summary section shows the resulting cash flow from your positions, their current value, gain/loss, and opening commissions. Cash Flow. Cash flow is the net cash flow of opening the position. A positive number indicates money flowing into your account (a credit). A negative number indicates money flowing out of your account (a debit). The Cash Flow field includes the effect of opening commissions. For existing positions, opening commissions are pulled directly from the Transaction Log, while commissions for contemplated trades are calculated using the commission schedule in the currently selected account. Current Value (Cur. Value). Current value for your existing positions is calculated by multiplying the current price of each item times the number of contracts (or shares) of each item. This number may then be adjusted by the estimated slippage for closing the position and closing commissions, depending on the "Valuation to Include settings for the currently selected account. The "Valuation to Include setting can be viewed and changed in the Account Information dialog (click the Info button on the main toolbar) or in the upper-right corner of the Account Status screen. The current value of any contemplated trades (in the Trade field) will always be zero. However, as soon as you convert a trade to an existing position, this field will usually become negative immediately, reflecting the effect of opening commission and the amount that would be lost due to slippage if you were to then close the position right away. Note: For short stock positions, the cash flow field displays a positive value representing the cash value of the stock being credited to your account Gain/Loss. This is Cash Flow minus Current Value for the total of your existing positions in this asset. Remember that the cash flow field includes opening commissions for existing positions, while the current value field can include the

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User's Guide effects of the slippage and closing commissions depending on the setting for the currently selected account. This field will be zero for contemplated trades. If you have chosen to include the gain/loss for previously realized gains/losses in the currently selected account, and there is an adjustment being made for these, there will be an asterisk to the right of this field. Clicking directly on the asterisk will cause this to change to an 'x'. and the previously realized gain/losses will no longer be reflected in this number (or in the Graphic Analysis). For more detail on the effects of this setting, refer to the section Including Previously Realized Gains/Losses in the chapter on the Portfolio Manager later in this User's Guide. Commissions. This is the total commission already charged for opening your existing position(s) plus any commission for a contemplated trade, if applicable. For existing positions, opening commissions are pulled directly from the Transaction Log, while commissions for contemplated trades are calculated using the commission schedule in the currently selected account.

The Greeks in the Matrix Summary

The third column in the summary section shows the Greeks: Delta, Gamma, Theta and Vega. The fields for these derivative parameters are for the total position you are currently analyzing, whether it is an existing position, a contemplated trade, or both. Delta. The Delta field displays 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 the number is positive) or lose (if the number is negative) on the position as a whole. The Delta displayed is based on your choice of True or Standard Delta in the settings for this asset (click the Model button to view and change this setting for this asset only, or select View | Default Models from the main menu to change the global settings that apply to all your assets). Gamma. The Gamma field displays the Gamma of your position in this asset, and is a useful indicator of upside/downside market advantage. For a one point increase in the price of the underlying, this is how much Delta would theoretically gain (if the number is positive) or lose (if the number is negative) on the position as a whole. Gamma also uses your choice of True or Standard Gamma in the Model settings for this asset. Theta. The number in the Theta field tells you what the change in the value of your position will be due to the effect of time alone. Theta represents how much an option will decay, theoretically, in the next 24 hours. For futures options, you can have the program compute Theta in units of the underlying rather than dollars (click the Model button to view and change this setting for this asset only, 30

or select View | Default Models from the main menu to change the global settings that apply to all assets). In the Matrix, OptionVue 6 uses implied Theta. This is computed using the individual options own IV, so that overvalued options have greater Theta and undervalued ones have lesser Theta. This is more useful than the "standard" Theta computed using the options projected volatility - i.e. where the option should be on the skew curve. Standard theta wont change much if the option price changes, except to the extent that the options price may warp the skew curve a little bit. In Graphic Analysis, we have to use standard theta because he whole projected scenario is hypothetical, so this can be a source of discrepancy between Theta displayed in the Matrix and the Graphic Analysis Theta. Vega. Vega is the sensitivity of an option's price to changes in volatility. It is the dollar amount of gain (if the number is positive) or loss (if the number is negative) you should theoretically experience if volatility goes up one percentage point. Vega also uses your choice of settings in the Model section of whether it is computed in units of the underlying instead of dollars for futures options.

IV Indicators and the Put Call Ratio

Avg.IV. This field displays Average Market Implied Volatility, which is a weighted average Mid-Implied Volatility (MIV) of all options in the Matrix for today. Only options that have a computed MIV are included in this average. The weighting scheme used is dollar volume (price times volume), so that the options with the greatest dollar volume of trading receive the greatest weight. Calls.IV. This is todays weighted average MIV for all call options. Puts.IV. This is todays weighted average MIV for all put options. P/C (Vol). The final field is the Put/Call Volume ratio for this asset. It is the 4day average put contract volume divided by the 4-day average call contract volume. Traders use this indicator to gauge market sentiment.

The Define Button

The first button on the Matrix toolbar is the Define button. Click this button to if you want to view and change fundamental information on an asset. Most of the information discussed in this section fills in automatically from the database when you start a file. No work is required unless you want to change something. However, users that want to create an assets not contained in our database should pay close attention to this section.

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User's Guide

In the top section are the fields for the asset type and name. A drop-down menu allows you to choose from the available asset types of stock, index, commodity, bond, or currency. The name of the asset should by typed in the field just as you want it to appear in the program. Everything else is organized under tabs.

Creating Asset Files

When attempting to open a Matrix from the Quotes Display for an asset that is not in our database, a dialog box appears: "Asset not found in the Background Data Base. Would you like to create an asset file for this item? If you reply Yes, the program opens an empty Matrix, ready for you to define the underlying, its options etc. Clicking No will bring you back to the Quotes Display.

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You can also create an asset file for an asset that is not in the database by selecting File | New from the main menu. A blank Matrix with nothing defined will open. In either case, click on the Define button and then go through the each tab (as appropriate for that type of asset) and fill in the necessary information. Once you have finished, click OK. Now youre ready to get quotes and begin working with the new asset. Hint: You can use another similar asset as a model for setting up the new asset. Asset files are automatically named according to each assets base symbol. However, you can also save an asset file under a different name. To do this, open the assets Matrix and choose File | Save As from the main menu. This can be helpful if you need two or more files for the same asset (e.g. two General Motors files, GM1 and GM2).

The Actuals Tab

The first tab is for defining the base actual for this asset, if any. When working with futures-based options, the base actual is optional, and is typically left blank. For example, most commodity traders are interested only in the futures and the options, ignoring the spot market. Of course, whenever you have an asset whose options exercise directly into an actual, you must define the base actual. You need to place the unique trading Symbol assigned to this asset in the Symbol field.

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User's Guide It will also have a Smallest Tick, which is the smallest amount that the price of the actual changes. Enter a decimal amount (e.g. .01) the price of that actual will be displayed decimally throughout the program. Enter a fractional amount (e.g. 1/16) and the price will be displayed fractionally throughout the program. Other fields that become available depending on the asset type chosen: Dividends. Dividend fields are displayed only when the underlying asset type is stock. Set the dividend pattern, amounts, and ex-div dates. These need to be the probable future dividend amounts and ex-dividend dates (the past is the best indication of this since most companies follow regular dividend patterns). When entering more than one dividend amount and ex-div date, you do not have to fill them in any particular order. It is a good idea to update these fields any time you become aware of a change in the companys dividend policy. OptionVue 6 updates these fields automatically for all stocks in the database. Dividends play an important role in option pricing. An impending ex-dividend date depresses call option prices and increases put option prices. Impending dividends of more than $0.50 might have a very substantial effect on the pricing of near-term options, especially for low volatility stocks (and many high-yield stocks are low volatility). Serious stock option traders will want to fill in the exact date of an impending dividend as soon as it is known. Dividend Yield. This field is displayed only when the underlying asset type is an index. This is the annual yield for the index. This is calculated by taking the dividends paid by each component stock and proportioned according to stocks weight in the index. Annual Coupon. This field is displayed only when the underlying asset type is a bond. This is the stated coupon rate and is used for accurate pricing of cash bond options. If you are working with options on bond futures, this field makes no difference. In fact, there is no need to define an actual at all for bond options that are based on the futures contracts. Interest Rate. This field is displayed only when the underlying asset type is a currency. This is the short term risk-free interest rate in the foreign country. Again, if you are working with just the futures and options on currencies you do not have to define an actual at all.

The Futures Tab

Under this tab you define the futures for an asset. The first field Symbol Base is a special field. Once you fill in the symbol base, the program knows that futures are defined for this asset. You must fill in the rest of the left hand side, plus add at least one futures contract month before you can leave the Define

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window. This insures there are no partial descriptions of futures. If the Symbol Base field is blank, the program assumes there are no futures for this asset.

Contract Multiplier. This is the dollar amount of gain or loss you have with a one full point (1.00) price change in the futures. Smallest Tick. This is the smallest amount by which the price of the futures may change. If you enter a decimal the futures prices will be displayed decimally throughout the program. If you enter a fractional amount (e.g. 1/8), futures prices will be displayed fractionally throughout the program. Futures Based on Same or Related Actual. This choice identifies whether the futures you define are based on the actual described in the Actuals section or some other closely related actual. It is rare to set this on related for any asset other than the S&P 100 index (OEX). If you do choose Related, several fields become available in the bottom left of the screen that need to be filled in. Related Actual Symbol, which is the symbol for the related actual you are saying underlies the futures. Related Actual Smallest Tick is the smallest amount by which the price of the related actual changes. Depending on asset type, Related Actual Annual Coupon, Dividend File, or Interest Rate will appear. Their meanings are the same as for the base actual in the Actuals section above.

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User's Guide

Delivery Month, 1st Delivery Date, and Symbol

In the Delivery Month column, you enter the existing futures contract months that you would consider trading, or want to watch. When you enter a month in one of these fields, the program automatically enters a guess in the next two columns. The maximum number of expiration months allowed is 44. Knowing that most futures first delivery date is the first business day of the named month, that is the programs first assumption. However, several other common futures delivery patterns are also built-in, and after seeing one or two 1st delivery dates, the program may recognize the pattern and make correct guesses from then on. You do not have to enter futures contracts in any certain order. Just pick any open row and start typing. OptionVue 5 will sort the futures contracts by 1st delivery date when you leave the Define window. To eliminate an individual futures contract, select the Delivery Months field and press the [Delete] key on your keyboard. The 1st Delivery Date column allows you to enter the precise dates of first delivery. In the case of financial futures, which dont actually have "first delivery, this needs to be the last day of trading. Correct first delivery dates are important for the futures price modeling. You may click the Calendar button on the right to instantly add the next futures contract in the sequence. The Symbol column allows you to enter the full symbol for each futures contract. Since this is used solely for quotes retrieval, you should enter the correct symbol for the data service you will be using with OptionVue 6. Omit any spaces. Roll Contracts in Sync With Options Expiration. The options for most futures expire before the actual delivery date of the futures contract. A check within the box (the program default) indicates that when the options for a particular futures contract expire, the program will automatically delete the futures contract from the Matrix as well. If you want to continue to see the Futures contract even though there are no longer any options trading, click on the box to uncheck this.

The AutoStrike Tab

The AutoStrike feature allows you to easily define the strike prices you want in the Matrix. Settings changed in the AutoStrike tab of the Matrix only affect that individual asset. Global AutoStrike settings can be seen and changed under View | Default AutoStrike in the main menu.

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AutoStrike allows you to indicate how far call and put prices extend into and out of the money. This is not done in terms of a specific number of strikes, but in more general terms - "Small Extent, "Moderate Extent, and "Large Extent. This allows the program to determine the number of strikes depending on the volatility of the asset. AutoStrike automatically changes the strike prices in response to price changes in the underlying every time the Matrix is opened. If you want to override the strike range settings, use the drop-down menus to choose Small, Medium, or Large for each Extent preference. You can also change at what price intervals strikes will be displayed, the minimum # months desired and whether to include LEAPs Quarterlys and/or Weeklys, if available. Once you have made any changes, click the Apply button. Changes to the AutoStrike will take effect immediately. When the AutoStrike settings are changed for a particular asset, the Overriding defaults checkbox automatically turns on, indicating that this asset is now working independently of the global defaults. This box may be unchecked (by clicking on it) to return the asset to using the global defaults. AutoStrike can only add strikes that are contained in the database. It is possible you might have to manually add strikes after a very large underlying price move. The program defaults are set to reduce the number of deep in-the-money options that are included (Small Extents). Most traders are not interested in deep in-the37

User's Guide money options, and these tend to have occasional price difficulties anyway. By removing options you are not interested in, the data interface is less burdened, Matrixes open faster, and the TradeFinder will run faster because there are fewer options and option combinations to consider. Since the AutoStrike automatically shifts strikes in response to price changes in the underlying, you should seldom have to manually add or delete strikes in the Matrix as described in the next section.

The Options Tab

The listed options for this asset are defined under this tab. There are two important fields at the top that tell the program (through a drop-down menu) how to treat the exercise of these options. Exercisable Into. Set this to indicate whether the options exercise into a position in the actual, are settled in cash, or exercise into a position in the futures. Exercisable. Set this to indicate whether the options are exercisable Any Time (American-style), or At Expiration Only (European-style).

Below these fields there is a grid for defining the strike prices, and a grid for expiration dates. The fields at the bottom-right define the price convention and 38

fill-in specifications for the options. Options can be added manually here, although it would normally be easier to use the AutoStrike section. Still, we will go through each section in detail. Strike. This column is for entering individual strike prices. It is limited to 200 strike prices. It is not necessary to enter all the strikes that exist; just the ones you are interested in. Unusual strikes such as fractional strikes are acceptable. A triangular mark indicates the nearest-the-money strike. After entering a strike price in the Strike column, the program will first look to its current definition file. If the strike exists in this file, it will use the symbol found there. If the strike is not contained in the definition file OptionVue 6 will try to guess the standard fills for the Call Symbol, Put Symbol and Multiplier based on the previous pattern. If the symbol guessed is not correct you will need to change it. After manually inputting a couple of symbols in the new series, OptionVue 6 will then usually be able to begin guessing correctly again using the new pattern. The program will not attempt a guess for an unusual strike such as a fractional strike. The program will sort the strikes automatically from low to high when you leave the Define window so you do not have to type them in any certain order. Just pick an open row and start typing. To eliminate a particular strike, select the strike (so the number is highlighted) and press the [Delete] key. Call Sym and Put Sym Columns. The Call Symbol and Put Symbol columns contain symbol "templates. Each of these fields will contain the base symbol, an underline character, and an encoding of the strike price itself. The template begins with the assets base symbol (or sometimes a variation of the base symbol), and ends with a strike price code. Between the base symbol and strike price code is an "underscore character. This character holds the place where the month and type (call or put) code goes when complete option symbols are assembled later. That is why they are called "symbol templates. The Mult Column. The Contract Multiplier column is for entering the dollar amount of gain/loss for a one full point price change in the option. For example, it is typically 100 for stock and index options. There is a separate multiplier for each strike because after a stock split there are sometimes two sets of options: one with the normal multiplier of 100, and the other with an odd multiplier like 150 (as would happen in a 3 for 2 stock split). Making the Contract Multiplier a separate field for each strike allows you to handle this kind of situation. The multiplier the program automatically enters in the last column is always 100 for stock and index options. For other kinds of assets, no guess is entered unless you have previously entered a multiplier in the lines above. If other strikes are already defined, the program repeats the same multiplier. Again, if the "guess OptionVue 6 enters is not correct, you can always correct it by hand.

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User's Guide Expiration Months. This column is for entering individual expiration months. It is not necessary to enter all the expiration months that exist, just the ones you are concerned with. The maximum number of expiration months allowed is 44. After entering a month in the Month column, the program will automatically try to fill in the Expiration Date column next to it. OptionVue 6 comes up with this date using expiration rules, but the program will not attempt a guess if it has no idea of the expiration rule for this asset. Stock and index options are easy: The program knows stock and index options expire on the Saturday after the third Friday of the named month. Other types of assets vary widely in their option expiration rules. You do not have to enter option expiration months in any certain order. Just pick any open row and start typing. OptionVue 6 will sort by Expiration Date when you leave the Define window. Expiration Dates. This column contains the exact expiration dates associated with the months. OptionVue 6 knows all the expiration rules used by the various exchanges. Whenever you change a date in the Date column, the program tries to figure out which option expiration rule this asset follows. If it can positively identify a new rule from the date or dates you have entered, it will switch and "lock on to that new rule. From then on it should enter correct dates when you enter new months. After entering the first month in the Month column, if you notice the program has no guess for the Date, or enters a wrong guess, correct the date right away before entering the rest of the months. You may notice that OptionVue 6 starts guessing the rest of the dates correctly! Important: OptionVue 6 is aware of the major U.S. holidays and can usually adjust for them in guessing expiration dates. However, some futures and options are actually European (e.g. ED - Eurodollar). These use the London Bank calendar, so you must either manually check the dates or change your system Holidays to match London and then re-enter the months. Next Month in Cycle Button. Click this button to insert the next expiration date in the "cycle for options or the next delivery date for futures. For example, if MAR, JUN, and SEP are defined, and this asset also has options that trade in December, then clicking this button will add DEC as the next month in this assets cycle. Defining the Options Smallest Tick and Fill-in Specs. In the bottom-right corner of the options tab are four fields. The first three fields allow you to indicate how you want the option prices displayed. The Option Fill-in Spec allows for flexibility in option symbol construction.

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The first two fields contain the smallest amount that the price of an option may change, both above and below a certain price level: "Price X. For example, on asset that trades in intervals of .10 above $3 and .05 below $3, you would enter: ".10 in the first field (Smallest Tick Above Price X), ".05 in the second field (Smallest Tick Below Price X), "3 in the last field (Price X). If your options have just one "smallest tick over the entire range of possible prices, you may enter that smallest tick in the first field, "Smallest Tick Above Price X, and leave the other fields blank (i.e. .01 for stock options in decimals). Many options trades now take place at odd prices "in between the nickels. So the program default when displaying stock option prices is to the penny. This includes the programs market price field a single representative price that is computed from bid, ask, and last. Theoretical Price and At Price are displayed to the penny as well. Note that the stepper keys (the left and right bracket keys on your keyboard) change the price of an option by a penny at a time now, or by intervals of a dime if you hold the Shift key down. The fourth field, Option Symbol Fill-in Spec, allows the user to specify how the blank (underscore) part of the strike symbol templates are to be filled in. This is accomplished using a set of codes: M = Standard securities month/type: A - L calls, M - X puts Y = Year: (i.e. 2009 => 9) F = Standard futures month: F,G,H,J,K,M,N,Q,U,V,X,Z G = Futures option month/type: F,G,H,J,K,M,N,Q,U,V,X,Z for calls; A,B,C,D,E,I,L,O,P,R,S,T for puts T = Type: C = calls and P = puts For example, if the strike symbol template for the Yahoo! 10 strike is YHQ_B, and the Option Symbol Fill-in Spec is "M, OptionVue 6 will know to construct the complete symbol for the July, 2009 10 calls as YHQGB. The program puts an "G into the "blank space in the template, as "S is the standard securities options month and type code for July calls. An example of a strike template for futures options would be the options on the S&P 500 futures. A strike price of 900 is SP_900. With the Option Symbol Fill-in Spec of "FYT, OptionVue 6 will know to construct the complete symbol for the June 900 calls, for example, as SPM9C900. Notice that "M9C are the letters the program puts into the "blank space. This happens according to the Fill-in Spec as follows. The first code in the Fill-in spec is "F, which indicates you should put in the standard futures month code "M for June. The second code in the Fill-in spec is "Y, which tells the program to put in 41

User's Guide a "9 for the year 2009. The final code, "T, indicates to put in the type code "C for calls. You may press Ctrl-D (ditto) to copy the contents of the adjacent symbol field into the current field. To eliminate all options information, click the Clear button while the Options tab is active.

The Quarterlys/Monthlys Tab

In addition to the standard options, some assets have Quarterly options. These expire on the last business day of the quarter. There is a separate tab to handle these, as they use a different root symbol. However, it functions exactly as the regular options tab does, and there is no need to define the information for things like Exercise conditions and the smallest tick.

LEAPs and Weekly Options

In addition to the standard and quarterly options, some assets have LEAPs (Long Term Anticipation Securities, which are very long-term options) and Weekly (very short-term options) available. There are separate tabs in the Define section for holding the definitions for these options. Under the LEAPs tab you define the LEAPs for this asset.

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You can have the program fill in LEAPs, if available, at any time from the BDB automatically. Go to the AutoStrike tab and check the box to include LEAPs if available. Then click on the Apply button. To eliminate all LEAPs information, uncheck the LEAPs box in the AutoStrike section and click on the Apply button. The information needed for LEAPs is the same as for the standard listed options. There is a separate table for each LEAPs expiration date. Like the options table, each line corresponds to a single strike. There are no templates for the LEAPs however. The full symbol is required for each call and put. The ditto function also works in this screen (press Ctrl-D to copy the contents of the adjacent symbol field into the current field). Note: Only about 10% of stocks have LEAPs available. If there are no LEAPs in the BDB, you can always check the CBOE website to see if they are, in fact, available. Weekly Options. Several areas in the program are specially designed to accommodate "Weekly options (were going with the CBOEs spelling on this). The Weeklys tab operates in exactly the same way as the LEAPs tab.

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User's Guide

If you want the weekly options included in the Matrix, select View | Default AutoStrike from the main menu and check the box entitled Include weeklys if available. This setting can also be overridden within any individual asset file.

The Convertible Securities Tab

Under this tab you can define up to two convertible securities (convertible bonds, preferred stock, or warrants) connected with an asset. Click on tabs 1 or 2 at the bottom to select convertible security #1 or convertible security #2 (outlined in the bottom-left corner of the example below). To eliminate all convertible securities information, click the Clear button while the Convertible Securities tab is active.

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Below are brief descriptions of the fields that may be needed to define a convertible security. Convertible Security Type. Use the drop-down menu to choose Convertible Bond, Preferred Stock, or Warrant. As you change this field, the fields beneath it will change to those relevant to the type of security (e.g. Yield to Maturity is displayed only if the Convertible Security Type is Bond). Symbol. The unique ticker symbol of this convertible security should be the correct one for getting a quote from your data service. Once the Symbol field is filled in, the program considers the convertible security defined, but you must still fill in the rest of the fields before the program will allow you to leave this tab. This insures that no convertible securities are left partially defined. If you clear the Symbol field, the program considers the convertible security gone regardless of whether the rest of the fields are still filled in. Description (warrants only). This is a brief, one to four letter description of the warrant. Most companies assign a single letter (i.e. A or B) at the time of issue. The program uses this description in its displays and reports. Bond Coupon Rate (convertible bonds only). This is the stated coupon rate, typically written with the name of the bond.

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User's Guide Maturity Date (for bonds) or Expiration Date (for warrants). The last day in the life of the convertible security. Annual Dividend (preferred stock only). The annual dividend per share in dollars. Ex-Div Date (preferred stock only). This is any ex-dividend date. It may be any recent or future ex-dividend date that you know of. The program is able to project forward or backward to determine the number and size of dividend payments that will be incurred during any time period under consideration. Payment Dates (convertible bonds only). This is an expression for the biannual payment date. OptionVue 5 uses this to estimate the amount of accrued interest that will have to be paid when purchasing these bonds. Conversion Ratio. This is the number of common shares obtainable by the conversion of one unit of this convertible security. Per Share Exercise Price (warrants only). The dollar amount per warrant that must be submitted to exercise or convert the warrants to common shares. Current Price. This is the current market price of the convertible security. Current Yield. This is an output-only field, included for your information. The program computes current yield by dividing the coupon (in the case of a bond), or the annual dividend (in case of preferred stock), by the current price. Yield To Maturity. This is an output-only field, included for your information. The program computes and displays the yield to maturity for convertible bonds. The Price Relationship Fields. The six fields on the right hand side of the dialog define the price relationship between the common stock and the convertible security. These numbers can be obtained from independent sources such as the Value Line Survey of Convertible Securities. You are encouraged to keep these numbers up-to-date, since the program uses this information to model hypothetical price changes for the convertible security based on various price movements in the underlying common stock.

The Model Button

To view and change the models for an individual asset, click the Model button in the Matrix toolbar. The Model dialog box will appear.

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Here you can change the model settings for this asset only. If there is a change you feel is appropriate for most of your assets, you should instead make the change in the global settings by selecting View | Default Models from the main menu. When you make a change, the check box next to that group will automatically turn on. This indicates that the assets model is being independently specified, overriding the global settings. To revert back to your global settings, click the override box to uncheck it. The option market price is the only setting that cannot be overridden within an individual asset file. Market Price is designed to allow you to display a single representative price for an option in the Matrix. It can be used throughout the program, including the Portfolio Manager, as the current market value. The program default is a weighted average of the Bid, Ask, and Last prices. You can only change the method used calculate Market Price under View | Default Models in the main menu.

Options Pricing
There are three options pricing models in OptionVue 6: Yates, Black/Scholes. and Cox/Ross/Rubinstein. Yates Model. Developed in-house at OptionVue Systems by Len Yates, this is an adjusted Black/Scholes model that takes into account dividends and the possibility of early exercise. If your choice is the Yates model, OptionVue 6 automatically uses the plain Black/Scholes when you are modeling European style options or the Fischer Black formula for options on futures.

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User's Guide Black Scholes Model. Most of the option pricing models in use today are rooted in the original model developed by Fischer Black and Myron Scholes in 1973. The Black Scholes model relies on a number of assumptions, some of which make this less than optimal for pricing stock options. If your choice is Black/Scholes and you are modeling options on futures, OptionVue 6 automatically reverts to the Fischer Black model for options on futures. Cox/Ross/Rubenstein. This is a binomial model that is extremely accurate, but takes a lot of computing power and thus is much slower. If you choose the Cox/Ross/Rubinstein model you may enter a resolution between 5 and 250. The greater the resolution, the greater the accuracy but the longer it takes to compute fair values. To help you decide which model is appropriate in various circumstances, you should know that the Yates model is much more accurate than the Black/Scholes, but it takes twice as long to compute (although this difference is so slight it would not be noticeable to most users with modern PC processors). Compared to the Cox/Ross/Rubinstein model, the Yates model is faster at every level of resolution. However, the Cox/Ross/Rubinstein model is more accurate at resolutions above 50. In conclusion, if extreme accuracy is important to you, use the Cox/Ross/Rubinstein model at a high level of resolution. If this makes computation times unbearably long, back off a little on the level of resolution. If extreme speed is important to you, use the Black/Scholes model. In most situations you will probably find the Yates model to be the best combination of speed and accuracy.

Delta, Gamma
When computing Delta and Gamma, OptionVue 6 gives you the choice between using the Standard model or True Delta and True Gamma. Delta is a measure of the slope, and Gamma the curvature, of a positions performance line at a given point. When options are involved, volatility is a critical input, and an appropriate value for volatility needs to be used for each option in terms of the current volatility skew. Both the Standard and True models do this correctly. However, the standard model does not account for the fact that volatility is on a curve as well. The slightest change in the price of the underlying leads to a slightly different volatility. When this volatility variance is taken into account, the model produces a truer Delta and Gamma, hence the names True Delta and True Gamma. Standard Delta measures how much the price of an option changes when the price of the underlying moves a small amount. The key to True Delta is that while projecting a small change in the price of the underlying, it also projects a 48

small change in volatility (based on the current volatility skew model and the CEV factor). Taking this volatility shift into account at the same time as the price shift leads to True Delta a more accurate representation of the true behavior of the option. The computation of True Gamma follows directly from True Delta. True Delta and Gamma reflect the true behavior of an option position, and as such they represent a significant step forward in options modeling and risk management. Unique to OptionVue 6, these numbers more accurately reflect the way your position will actually perform.

Futures Options Theta, Vega

You may choose the Theta and Vega for futures options computed in units of the underlying x 100, or in units of currency.

Slippage Model
The OptionVue 6 slippage model is a sophisticated formula that takes into account the volume of your prospective trade in relation to the average daily volume in the option. It also projects future daily volume in the option, taking into account the passing of time and possible price shifts, to use as a basis for computing the likely closing transaction slippage. Slippage is applied only to options; not to futures or actuals. The degree of slippage is adjustable to five levels: small, moderate, large, none, or Hit Bid/Ask. You will be able to better determine which degree of slippage is best for you after some experience with the program and with some real trading. Is OptionVue 6 recommending trades that you can't seem to get executed? You might want to step the slippage up a notch. If the program is being too conservative, try stepping it down a notch. When Slippage is set to "Hit Bid/Ask, the program sets the At Price equal to the Asked price when you are buying and to the Bid price when you are selling. For more information about the OptionVue 5 slippage model, refer to the section Under the Hood - OptionVue6 Models.

Closing Transactions
No analysis would be complete without considering the transaction costs involved in both opening and closing the trade. While opening transaction costs are computed and displayed in the summary section of the Matrix, it is less obvious how closing transaction costs are taken into account. They are, nevertheless, taken into account during every analysis. There are three ways for OptionVue 6 to treat closing transactions: Entire Position, All Options, and Only Expiring Options 49

User's Guide Entire Position. With this setting chosen, the program applies closing transaction costs to all positions - options, actuals, and futures. In addition, OptionVue 6 takes into account the possibility of assignment on the final day of an in-the-money option if you are in a covered write position. The program considers this a single transaction - the sale of the underlying at the strike price of the option - and posts just one closing commission charge. All Options. With this setting chosen, the program applies closing transaction costs to all options, but nothing else. This is useful when you want the program to assume that the underlying actual or futures positions will continue to stay open beyond the limited time of the options positions. Only Expiring Options. With this setting chosen, the program applies closing transaction costs only to those options that will expire between today and the Projection Date. In other words, if the time frame for an evaluation goes beyond the expiration date of some of your options, the program will assume that in-themoney options are "cashed in" for their intrinsic values. The transaction cost is only for these options. No matter what setting is chosen, closing transaction costs are never assessed on options that are expiring out-of-the-money. These are always allowed to expire worthless.

Futures Pricing
OptionVue 6 contains three futures pricing models: Constant Carry, Constant Basis, and Variable Basis. The program automatically defaults to the appropriate model, so before you change the default setting you should be certain that your new choice is really most appropriate model for the kind of futures you are modeling. Futures prices must be filled in before automatic futures modeling will work. Constant Carry. Index futures, currency futures and metals futures are examples of futures that should be modeled using the constant carry model. The constant carry model works on the premise that the futures in question have no seasonal price behavior, and have a relatively time-independent cost of carry associated with their underlying actual. Cost of carry is the cost of owning and storing the actual. It includes the opportunity cost of the capital needed to buy the actual, plus storage costs and insurance. A single number is associated with the constant carry model, an annual rate, which is displayed in a box to the right. The program computes an apparent cost of carry from the futures prices themselves and plugs this number in for you. You can change this number if you like, but the program will re-compute and replace the cost of carry every time you open an assets Matrix.

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Constant Basis. The constant basis model handles futures whose underlying actual either has seasonal price behavior or a substantially time-sensitive cost of carry. Agricultural futures and bond futures are examples of futures that should be modeled using the constant basis model. The constant basis model works on the assumption that the various futures contracts and their actual will continue to maintain the same price differential that currently exists. Variable Basis. A more sophisticated version of the Constant Basis model, this model measures the relative price movements of all the various futures contracts in the Matrix and projects those relative movements to continue in the future. Note that this model can not be used to supplant the Constant Carry model. If Constant Carry is the best model for a particular asset, you should continue to use that model. To get the most out of the variable basis model, a final batch update should be performed each day well after the close (say, at least an hour). That way, the .HFC files that are used to store the relative movements of the futures contracts are left with settlement prices, rather than intraday prices that may have been stored during the day. Settlement prices are more reliable than intraday prices. For more on futures pricing models, see the section: Under The Hood - Futures Pricing Models.

Quotes Reception
The settings here are designed to allow you to filter out quotes that may cause problems within the program and to adjust the way quotes from your data service are displayed. Accept Bid/Asked. The default is to have this box checked so the program receives bid and asked prices for futures options into the Matrix. You may want to uncheck this box when working with futures-based assets where the quality of the bid/asked pricing information provided by the exchanges is poor. Options Price Filter. OptionVue 6 contains a filter for checking incoming option prices. You can enter a percentage in this field and if an incoming option price differs by more than the specified percentage from the option's theoretical value, the price is rejected and an "..f.." will be displayed in the option's "Last" field in the Matrix. Entering a smaller number constricts the filter, while a larger number will relax the filter. Entering 999% (the program default) in this field will turn the filter off altogether (meaning that all option prices will be accepted). If there is insufficient information for computing option fair values (e.g., no price for the underlying), all option prices will be accepted. When updating an asset file containing prices that are four or more days old, the software does not apply the options filter. That is because comparing a new 51

User's Guide option price with an out-of-date fair value could cause too many of the options prices to be incorrectly filtered out. To stop this from happening, the filter is not used on stale asset files. The filter is also not applied when jumping back four or more days in BackTrader mode. Divisors. These fields let you set the decimal placement for incoming quotes. The program default is 1.0. This section is primarily designed to facilitate quotes retrieval outside the U.S., allowing you to accurately place the decimal point in quotes coming in from a data service. For example, if the Actuals Divisor is 100 and a price received for the S&P 100 index at "65575", the program will interpret this as a quote of 655.75.

Currency Sign
OptionVue 6 defaults to using the "$" sign before the number. You can change the currency sign used throughout the program by selecting View | Default Models from the main menu and choosing one of the major currency signs from the drop-down menu. You can also choose whether you want the currency sign to be displayed before or after the number by clicking on the appropriate radio button. You can also override the currency setting independently by asset.

Volatility, Interest Rates, and Margins

Along the top of the Model dialog box are a series of buttons: Volatility, Rates, Futures Margins, Securities Margins, Print, and OK.

The Print button allows you to print a snapshot for this screen, while the OK button allows you to save all changes made and close this window. The other 52

buttons open a dialog box that allows you to view and adjust the settings for this asset file only. We will now go over each of these in turn.

Volatility Button
A good options program has to handle volatility. Ask any professional options trader and they will tell you volatility is critical. OptionVue 6s volatility measuring and tracking are second to none. From the Model window, click the Volatility button to see the Model Volatility window for this asset. The first thing to note is that the Model Volatility screen has two tabs: Measurements and Settings.

The Measurements tab is where OptionVue 6 stores the data needed to properly calculate volatility for this particular asset. The top half is for the Variable Volatility Model while the bottom half is for the Uniform Volatility model. Before we discuss these models in detail, we will first discuss how OptionVue 6 uses the two different measures of volatility: Implied and Statistical.

Implied Volatility
Implied volatility (IV for short) is computed by starting with the market price of an option and solving the pricing model backwards to arrive at the volatility. This is 53

User's Guide the volatility that the underlying asset would need to have for the option pricing model to produce the same theoretical option price as the actual option price. After computing the IV from each option, all IVs are combined (using a weighting scheme that favors the more heavily traded options) to produce a single average implied volatility. This number, labeled "Grand Average IV", is displayed in the lower-left corner of the Model Volatility window in the Uniform model section. The computed IVs from all options are also combined in another way to produce volatility skew curves. Options trade at different levels of implied volatility by strike and by expiration month. OptionVue 6 measures these levels, and the upper half of the Volatility Model window, labeled the "Variable Volatility Model", is where the program produces and stores the volatility curves. As long as there are three actively-traded strikes, OptionVue 6 will use the moreaccurate variable volatility model. For less-actively traded assets, the program defaults to using the implied volatility from the uniform model. You can always override the program default by clicking on the Settings tab.

Statistical Volatility
Statistical volatility (SV for short) measures the magnitude of the assets recent price swings on a percentage basis. Most of the options industry calls SV historical volatility, but we prefer the term statistical volatility, reserving the word historical for referring to the history of both IV and SV. SV can be seen in the bottom-right corner of the Model Volatility window. SV can be measured from various sample periods (the program uses 20 days, if available). Regardless of the length of the sample period, SV is always normalized to represent a one-year, single standard deviation price move of the underlying. IV is also normalized to this standard. Thus IV and SV are directly comparable when viewed in OptionVue 6s volty charts. Most option traders lean towards using IV rather than SV for their options fair value pricing because IV is more responsive to changes and perceptions in the marketplace. However, neither is perfect. For perfect options pricing you need future volatility, which is something nobody knows, so we must rely on recent measurements and try to anticipate changes. Accurate volatility measurement is vital to successful option trading, and statistical and implied volatilities both play an important part. Now let's look at the Measurements and Settings tabs in detail.

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The Measurements Tab

When you first click the Volatility button, the program opens the Model Volatility window on the Measurements Tab, which is split into two sections. The top half is for the Variable Volatility Model (which means a different IV number is used for each individual option).

The numbers you see in the upper table are the 3-day average ATM (at-themoney) volatilities. For example, 39.2% is the 3-day average ATM volatility for January options (both calls and puts combined) in the S&P 500 Futures (Symbol: SP). A lot of information underlies what you see here. Initially, the buttons to the right will be grayed out. To view the volatility skew graph, parameters, or override you must select a specific cell (the January options, both calls and puts, are selected in the example above) and the buttons to access those functions will then become available. Options trade at different levels of implied volatility by strike and by expiration month. OptionVue 6 measures these levels and maps them onto a graph, with the vertical axis being implied volatility and the horizontal axis representing how far in or out of the money the option is. Each option results in one plotted point on this grid. The program then draws a "best fit" parabolic curve to these plotted points and stores the parameters of these curves. A separate volatility curve is

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User's Guide fitted for each group (a group is a specific expiration month and type, e.g. the January calls). OptionVue 6 also fits a volatility curve to the combined calls and puts of each month, resulting in one volatility curve per month. These curves can be accessed by selecting a cell in the bottom row (labeled Both) under the month headings. While the program prepares combined curves, they are used only when a check is in the Use combined call and put skews checkbox (the program default is to have this checked, in line with the theory of Put/Call Parity).

A faint outline is displayed around the cells representing the curves currently in use by the program. Try checking and unchecking this box to see the outline move. The volatility skew curves are recalculated and redrawn every time you open a Matrix.

Skew Graph
To see the volatility curve for a specific group, select the group (by clicking in a specific cell in the call or put row under the month heading so that the cell is highlighted) and then click the Skew Graph button (or press the letter G on your keyboard, or simply double-click the cell). The graph will contain up to three curves, representing the last three trading days, and also contains the plotted points for today's current MIV readings.

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The curve is then drawn to pass as closely as possible through all the available plotted points. If you see any points that are far away from the curve, and the curve does not bend to try and include them, it is because the options represented by those points have little trading volume. The programs curvefitting algorithm takes volume into account and gives more weight to heavily traded options. If you select one of the cells in the Average column and view the Skew Graph, you will see a graph that displays the curves for all the expiration months defined in the Matrix. The example below shows the curves for the calls in all the expiration months. Each curve is based on an average of the last 3 days of parameters. The graph also contains plots of todays current MIV readings for all months. If you notice the curves dont seem to fit the data very well, remember that the curves are based on the last 3 trading days worth of information, while the plotted points represent just todays information.

Notice that the horizontal axis is scaled with negative numbers to left (which can go down to about 1.0 or so) to a positive 1.0 or so at the right, with zero in the center. These numbers come from a formula that expresses how in- or out-ofthe-money an option is (called the ITM Factor): Ln(K/S)/sqrt(t)

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User's Guide In this formula, S stands for the price of the underlying asset, K stands for the strike price, Ln is the natural logarithm function, and sqrt(t) means the square root of time until expiration (where time is represented as a portion of the year). The meaning of this formula is rather simple, really. The first part, Ln(..), indicates how proportionately in or out of the money an option is. The second part, dividing by the square root of time, adds an interesting probability dimension. It means, for example, that a 5-point in-themoney option with 1 day of remaining life is deeper in-the-money than a 5-point in-the-money option with 30 days of remaining life. Mapping everything into this formula for the horizontal axis allows us to plot the current MIV readings in a framework with the curves relatively straight and even. Dividing by the square root of time makes the curves for each month fall fairly close together, making it easier to predict volatilities with the passage of time.

Skew Parameters
It takes three parameters to specify a volatility curve. ATM (at-the-money) Volatility, Slope, and Curvature. For each individual group, the program stores up to 3 trading days of information for each of these three parameters. To view these numbers, select the group you want to view and click on the Skew Parameters button (or press the letter P on your keyboard).

You will see a dialog showing a list of stored parameters for this group, beginning with the most recent at the top. You can change the numbers if you want, but you would not typically need to. Using three days of data allows the program to average the parameters and smooth away "noise". No more than 3 days are kept, because volatility curves change day by day, and using longer periods would make the program too insensitive to current readings.

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Overriding the Volatility Skew Curves

You can manually change volatility skew curves by selecting the desired group and then clicking on the Skew Override button (or press O on your keyboard).

In the Volty Skew Override dialog you can view and change the volatilities the program will use for this group. When you manually input a volatility percentage, the program bends the curve for this group. You will immediately see the effect this change has on all the strikes right here in the dialog. To see a graph of the new curve, close the Volty Skew Override dialog and click on the Skew Graph button. The program will remember if you changed something in the Override dialog today, and will not re-fit the curve for the rest of the current day, even if there are price updates. The first time you obtain prices the next day, however, the program will push the modified curve down on the 3day stack, discard the curve from three days ago, and begin to form a new curve from the days current price information.

Uniform Model - Implied Volatility

The lower half of the screen under the Measurements tab is for the Uniform Volatility Model. The section on the left side is for Implied Volatility, which consists of three fields: Grand Average IV, Days Accumulated, and Use the most recent "n" days.

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User's Guide

Grand Average IV is an overall average implied volatility based on up to 10 days of recorded volatilities (the figure 3735% displayed in the example above is based on the most recent 3 days). When there are less than 3 active strikes, this is the projected volatility the program will use as the basis for computing the current and future fair value for all the options in this Matrix. Using Grand Average IV is also an available option if you choose to manually set the Uniform Model as the method used for this particular asset in the Settings tab. Days Accumulated. This field displays the number of days of data that have been accumulated for this asset file. To see a list of the last 10 days of data, click on the ellipsis button to the right of the Days Accumulated field.

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Each record in this window is a weighted average of all option IVs on that date. The weighting method for combining IVs uses an algorithm of price times volume. This gives more liquid options a greater say in the average, while keeping them from completely drowning out the other options. This method is carried forward into the computation of Grand Average IV. Use the Most recent "n" days. This field shows how many days worth of implied volatility readings are being used to calculate the Grand Average IV (2 in this example, with a maximum of 10 stored). The program default is to use the most recent three days. You can manually change this to indicate how many days worth of implied volatility readings you want to use when computing Grand Average IV.

Uniform Model - Statistical Volatility

The section on the left side of the Uniform Model is for Statistical Volatility, the actual volatility of the asset. It consists of two fields: Current SV and Days Accumulated.

Current SV. OptionVue 6 can compute an excellent measure of SV from up to 20 days worth of daily high and low prices for the underlying asset. Exponential averaging is used to give more weight to the most recent day's activity. There must be 5 or more days of high/low prices before the program will compute SV.

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User's Guide Days Accumulated. This field displays how many days of price data are currently stored for this asset. If OptionVue 6 can find a historical price file for this asset, it will attempt to read the latest 20 days of data from there and fill in these records for you. To see the 20 day high/low price history that is being stored, click on the ellipsis button to the right of the Days Accumulated field.

You can fill in any missing information if you like but this is not usually necessary since the program will pull the data from the historical price chart file, as long as one exists. Also, the program will default to using the current SV number to model option prices only if there is no Implied Volatility number in both the Variable and Uniform model. Using Current SV is also an available option if you choose to manually set the Uniform Model as the method used for this particular asset in the Settings tab.

The Settings Tab

Under the Settings tab, you can tell the program what method you want to use when modeling volatility. There are two volatility models available in the regular program: Uniform and Variable. A third model, the Manual Skew volatility model, is available only in the Professional Edition.

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OptionVue 6 automatically defaults to the Variable model. For low-liquidity stocks with fewer than 3 active strikes, the program defaults to the Uniform model. You can always choose to manually override the program default by clicking on the appropriate radio button. The currently selected volatility model is always displayed in the upper-right corner of the Matrix summary section. Uniform Method. Using the Uniform model means that the program applies a single volatility number to all of the options, regardless of strike and expiration month, when modeling option prices. Clicking on Uniform causes a form to open in the bottom section that allows you to choose what proportion of Grand Average IV and Current SV is used to compute that single volatility estimate.

If you assign some weight to a volatility type that OptionVue 6 has no reading for yet, the program automatically shifts all the weight over to the other category. For example, if you specify that a proportion of SV be included and there is no SV measurement available (i.e. because 5 days of data has not been accumulated 63

User's Guide yet), the program automatically pulls 100% from Grand Average IV. Once SV readings become available, the program begins giving SV the weight you want. This ensures that OptionVue 6 always has a good volatility figure to work with. Variable Method. When you choose the Variable model, the program uses different volatilities by strike and expiration month, according to the volatility skew curves discussed previously. Whenever the program needs a volatility, it picks that volatility from an appropriate spot on the appropriate curve (remember that there is a different volatility curve for each group). In the real world, volatilities are not constant across strikes, so we recommend that you use the variable method whenever possible to get the most accurate fair values possible. However, the variable volatility is kind of like a table: It needs at least three legs to stand on. By this we mean that your asset should have at least three actively traded strikes. This ensures that the variable volatility model has enough data to reliably measure the volatility curves. You should probably leave this set to uniform if a stock's options are thinly traded or there are fewer than three active options available.

The Manual Skew Model

Manual Skew is a choice that is only available only in the Professional Edition of OptionVue 6. With this model you can set the volatility independently for each strike and contract month. With Manual Skew selected, the Manual Skew Graph button becomes available. Click this button to bring up the Manual Skew window a graphical interface provided to facilitate the setting of volatility curves.

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Each expiration month is given its own unique color. Checkboxes in the lower right corner of the form allow you to selectively display/hide the skew curve for each expiration month. Intervals of the horizontal axis represent the available strike prices. The vertical axis represents volatility. In the example above, the February, April, and July volatility skews are selected and displayed simultaneously. Here you can edit volatilities by typing numbers in the grid in the lower-left corner (you will see the changes reflected immediately in the graph above) or you can click and drag the individual nodes in the graph to what you feel is the appropriate volatility level (changes are then reflected in the grid). Clicking on the Set to Implied button will copy the current option implied volatilities into the manual volatilities. The Set to Variable button will copy the volatilities from the variable volatility model into the manual volatilities. The Grand Average IV is substituted for volatilities the variable model is unable to compute. Both these choices are designed to give you a reasonable starting point, from which you can then make any adjustments you feel appropriate. The Hide Implied/Show Implied button toggles current option implied volatilities in and out of view. In the Manual Skew window, calls and puts for a given expiration and strike are given the same volatility. However, the volatilities of individual calls and puts may be manually changed in the Matrix using the Projected Volatility field. The Projected Volatility field shows the volatility the program is using to calculate each individual options theoretical price and is usually output only. However, when using the Manual Skew model, it becomes an input field as well. The Manual Volatility Skew model takes into account projected changes in the price of the underlying and OptionVue 6 will move the skew curve you have set in response to produce appropriate volatilities at different price levels. In addition, CEV modeling is active in Manual Skew mode unless you have chosen to turn it off under the Settings tab.

CEV Modeling
On the right side of the Settings tab is your CEV modeling information. CEV stands for "constant elasticity of volatility", which refers to the observed tendency for volatility to go up or down as the price of an asset goes up or down.

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User's Guide CEV modeling is designed to make sure that you have the most accurate options modeling possible in the Matrix and when projecting positions into the future with the Graphic Analysis. With CEV modeling, OptionVue 6 estimates a shift in overall volatility levels due to the so-called "CEV effect". With stocks, bonds and stock indexes, the relationship is almost always inverse. In other words, when the price of a stock goes up, its volatility goes down; when the price of a stock goes down, its volatility goes up. In OptionVue 6, this is indicated by a CEV Factor less than 1.0. A CEV Factor of precisely 1.0 indicates that there is no CEV effect. On the other hand, most commodities and currencies exhibit a positive relationship between their price and volatility. This would be indicated by a CEV Factor greater than 1.0. When projecting into a future scenario where the price of the underlying is different from today's price, OptionVue 6 models the CEV effect. For example, let's say that you are projecting that the underlying price will be lower than it is today at some future date, and CEV is less than 1.0. This will cause OptionVue 6 to project a somewhat higher volatility than it would if it just used the regular volatility model. The more severe your projected price drop, and/or the smaller the CEV Factor, the greater the upward shift in projected volatility due to CEV. Fortunately, OptionVue 6 users do not have to come up with CEV Factors on their own. OptionVue 6 automatically receives up-to-date CEV Factors each time you open a Matrix. You can manually change the CEV Factor in-between BDB updates and the program will remember your number. If you manually change the CEV figure and want to go back to the figure from the current BDB, just click on the paste in button located to the right of CEV Factor field. If you want to disable the CEV Effect for any reason, you can click on the checkbox so that it is unchecked. You can also just blank the CEV Factor field. Whether the box is unchecked or there is a blank CEV Factor field it has the same null effect on the model as a CEV Factor equal to 1.0, but the CEV Factor will not be updated when the field is blank.

Adjusting the Variable Volatility Model

The Variable Volatility model stores, and normally uses, three days of volatility readings. Since the Variable Volatility model is sensitive to bad prices, and can be thrown off by them, you may need to delete the 2nd or 3rd days volatility readings sometimes in order to get rid of bad numbers and get the model back on track. Instead of deleting records, you can simply enter a date into the field at the bottom of the setting screen entitled Dont use volatility readings prior to. For example, typing T (and then pressing the [Enter] key) fills in todays date and makes the program use only todays volatility readings. 66

This can also be useful if the market makes a big move, causing volatilities to jump significantly, and you want the models to use the new, higher volatility level. There is a global version of this field available under View | Default Models in the main menu, under the Volatility button. Enter a date in this field and the program ignores volatility readings collected prior to that date across all assets.

The Rates Button

You can manually override the interest rates used for individual future and option months for a particular asset. To do so, click on the Rates button to bring up the Interest Rates dialog box.

All option expiration months that are set up in the Matrix will be available. Interest rates are normally set globally for the entire program under View | System Models in the main menu, and kept up-to-date by your connection with our NetVue servers. The program uses these interest rates to create a term structure of interest rates so it can calculate the correct rate to use for a particular date. If you override the system defaults, the override box will automatically be checked to show that the system default interest rates are not being used.

Futures Margins Button

OptionVue 6 contains a simplified version of the SPAN formula for futures and futures options margin requirements. SPAN, now in use by all the major exchanges of the U.S. as well as many overseas exchanges, is a superior method of computing the collateral requirements of a position because it more closely measures a positions true risk. Our version of SPAN, in which the program computes its own risk arrays receives the SPAN parameters from your automatic NetVue updates. You can see the SPAN parameters for a given commodity by clicking the Futures Margins button.

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User's Guide

If you are interested in a more detailed explanation of SPAN parameters, you can always learn more by obtaining a copy of the SPAN documentation from the futures exchanges. The Final Multiplier field is not a part of SPAN. This was added to OptionVue 6 in case you want to have the programs requirement calculations to be multiplied by a factor other than 1.0. The Keep These Settings Permanently checkbox allows you to keep hand-entered values for the Short Option Minimum and Initialto-Maintenance Ratio fields.

Securities Margins Button

OptionVue 6 contains the full formula for securities and securities options margin requirements, and follows Reg T as well as the rules set in the CBOE margin manual.

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Our model uses five input parameters: 1. Security Original Margin 2. Security Maintenance Margin 3. Option Standard Factor 4. Option Minimum Factor 5. Absolute Option Minimum Security Original Margin & Security Maintenance Margin. Security original margin and maintenance margin have to do with the buying and selling of securities on margin. You will need to find out from your brokerage firm what they require and enter the numbers here. The program default is the current minimum of 50% and 30% respectively. Option Standard Factor, Minimum Factor, & Absolute Option Minimum. The option standard factor, minimum factor and absolute option minimum have to do with the selling of naked options. The rules for naked option writing read like this: X% of the underlying plus the price of the option, minus the out-of-the-money amount if any, down to a minimum of Y% of the strike price plus the price of the option, with an absolute minimum of $Z per contract. The X, Y, and Z in this sentence are the same parameters mentioned in the first sentence above, in the same order. OptionVue 6 comes pre-programmed with standard margin parameters. However, if you do any buying or selling of securities on margin, or naked option writing, you should make sure OptionVue 6 contains the same parameters that you are subject to at your brokerage firm.

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User's Guide

Deleting Asset Files

Deleting asset files that you are no longer using will help speed up your quotes reception. To delete an asset file, choose File | Delete from the main menu. The following window will open.

To delete an individual file, select the file (by clicking on it so it is highlighted) and click on the Delete button. To select multiple asset files, hold down the Ctrl key while you selecting the individual asset files you wish to delete. Once you have the files selected, click on the Delete button. You may also choose to use the buttons that allow you to Select all asset files, or to Select all asset files not represented in the Quotes Display. The appropriate assets will be automatically highlighted. At the bottom of the window, the program tells you how many files have been selected for deletion. If you are sure these are the files you want to eliminate, click on the Delete button.

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Assessing Performance with Graphic Analysis

The Graphic Analysis was first introduced in the Getting Started Guide, where we showed you how easy it is to analyze a position. All you need to do is enter a position in the Matrix and click the Analyze button 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 or volatilities.

It is important to understand that all the lines and numbers displayed in the Graphic Analysis, even when looking at today (the T+0 line) are theoretical projections. The sole exception is the single dot that displays the current gain/loss of your position based on current market prices (as displayed in the gain/loss field in the summary section of the Matrix). You can choose to not have the current gain/loss displayed by changing the setting for the dot under File | Preferences in the main menu. OptionVue 6s vivid graphing gives you a visual feel for the potential returns and risk of your investment. Slippage, commissions, dividends and interest cash flows are all taken into account. See what happens when you change a variable: the program instantly redraws the graph. The most important element of options trading is effective risk management and analyzing the risk vs. the reward. The Analyze function gives you the ability to

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User's Guide see your positions graphically, and to easily compare different trades in the same asset against each other.

The Graphic Analysis Screen

A description box located above the graph contains a detailed summary of the position being analyzed. If any previously realized gains/losses are being included in the analysis, this will be indicated under the trade description along with the dollar amount being included.

There will normally be several lines, with each representing the performance of your position at a different projected date. You can vary the number of lines being displayed on the graph from 1 to 5 by choosing a number from the dropdown menu of the "Number of Lines" field located in the upper-left of the screen. The line legend to the right shows how many days out each line represents. The default for the Legend in the Graphic Analysis is to indicate the date of each line by the number of days from today (i.e. T+0 for today, t+30 for 30 days from today). You can choose to have the Legend display the actual date if you prefer. This is found under File | Preferences in the main menu, under the Settings tab. In the example above, the selected solid line represents 13 days (T+92) in the future, the January 17, 2009 expiration date. The bottom dotted line is what the trade looks like today (T+0). The dashed middle line represents the trade 72

halfway between today and expiration, on January 11, 2009 (T+46, or 13 days from today). The initial default choice for the solid line is always equal to the Max Projection Date. If you have chosen to display at least 2 lines on the graph, the program will also show you what the trade looks like today in a short-dotted line (T+0). To determine the default date for each additional line, the program divides the number of days to the Max Projection date by the number of lines chosen. In the professional Edition, the analysis default is to the T+0 line when you first open it. To change the defaults and have specific dates associated with each line, rightclick in the Max Projection Date field (or in the line legend box) and change the dates in the Projection Dates dialog:

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. To see more of what lies to the left, click the red left arrow button. To see more of what lies to the right, click the red right arrow button. To zoom in, click the button with blue arrows pointing inward. To zoom out, click the button with blue arrows pointing outward. To scale the Horizontal axis logarithmically, click the Log button and to scale it linearly, click the Linear button. You can change what center price and intervals are used for the horizontal axis in the graph by right-clicking anywhere within the graph and changing the default information in the Horizontal Axis dialog.

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User's Guide On the left of the graph are several fields you can change for an instant reanalysis. Most of these are self-explanatory. The Volatility Change field is for entering a projected shift in implied volatility. For example, an entry of "-5.0%" indicates that you expect implied volatility to go down five percentage points during the projected holding period (this is in addition to the shift in volatility due to price changes that are already accounted for by the CEV factor). When you analyze a position, more information is being pulled in from the Matrix than just the position. Also needed are the cash flow, margin requirements, and a few other pieces of information. For that reason, we like to say that youre analyzing a case.

Numeric Readouts in Graphic Analysis

In the lower left, and stretching out along the bottom of the Graphic Analysis, are numeric readouts corresponding to the currently selected (highlighted) graph line. In the Regular Edition of OptionVue 5 the farthest projection date is always selected when you first analyze a position. The Professional Edition always begins with today's line (T+0) selected. To select a different line, simply click on the line itself in the graph, or on the date it represents in the line legend. You will see all the numbers and readouts change instantly.

The example above shows a position with the middle (T+7, or January 11, 2009) line selected. All the information displayed is from theoretical projections for this position 7 days in the future. 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 (if any), and the amount of capital provided. Below this is 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 74

deviation of returns, and probability of profit figures are based on a bell curve price projection centered on todays price. Below the graph are the projected P/L (profit/loss), Delta, Gamma, Theta, and Vega and maintenance margin for each labeled price interval of the currently selected line, so that each of these numbers corresponds to the price that is displayed on the horizontal axis directly above it. Also associated with the currently selected line are the colored bars along the bottom of the graph area. These represent the first (fuchsia) and second (aqua) standard deviations of probable underlying price distributions, based on the volatility and the 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 todays projection, the colored bars will disappear because with no time, there can be no probability distribution. Important Note: 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)

is determined as follows. If the user has a bell target set for this asset, the program uses the volatility associated with that target. Otherwise, the program uses the recent SV, if available. If SV is unavailable, the program uses current Grand Average IV.

Target Price Analysis

Target Price Analysis may be used with Graphic Analysis, to quantify the expected returns and risk of a position, based on a user-supplied price forecast (target) for the underlying. In the upper-right corner of the Graphic Analysis is a Target (Tgt) button, and the area directly beneath the Target button shows a display of the results of a Target Price Analysis. When you click the Tgt button the Target dialog box for the current asset will open.

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User's Guide The price and date fields that are available in the lower section of the dialog will change to match the Target Type and Projection Date(s) you have chosen. Targets can be viewed and set here in the Graphic Analysis, in the Price Charts, and in the TradeFinder. Once you have made any changes and click the OK button, your target will now be indicated on the graph with shading.

If your target is a single price, there will just be a vertical line on the graph. If your target is a price range (as in this example) there will be a shaded area representing that price range. If your target is a bell curve there will be two tones of shading - representing the first and second standard deviations of underlying price movement. This makes it easy to see how any individual trade is likely to perform within your expected target range. In particular you should notice how the expected return based on the target ($1,195 +/- $995) differs markedly from the expected return shown in the bottomleft corner ($260 +/- $1,920) which is based on a two standard deviation price move (using a lognormal distribution) as illustrated by the aqua line just below the graph.

Stepping Through Volatilities

The lines within the graph can also be set to represent changes in projected volatility rather than time. To do so, click on the Step through volatilities checkbox (in the upper left corner of the screen), choose the desired projected 76

date for the analysis, and then enter the percentage Volty Change Per Step you want to view.

Now the graph will show the trade on a single day in the future (April 12, 2009 in the above example), but shows you what the expected gain/loss for the position would be at various levels of implied volatility. Notice that the bottom solid line is selected (V+0, meaning that implied volatility levels remain unchanged from today) and all the numeric readouts displayed correspond to that line. The lines above show how your profit/loss is projected to change with each 5% increase in implied volatility. Notice that the line legend to the left now shows V plus each projected increase in volatility from today (rather than showing T plus the number of days as it did when we were stepping through dates). The interval between each line is determined by what is in the Volty Chg Per Step field.

Analyzing Multiple Cases in the Graphic Analysis

You can analyze another case by returning to the Matrix, entering a modified or completely different position, and then clicking the Analyze button again. You will now see a graphic analysis of the new case. The first analysis is not lost, however. To the right of the description box of the Graphic Analysis are buttons that allow you to navigate between the various cases you have analyzed.

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User's Guide

You can return to the first case by clicking the yellow left arrow button. To go back to the previous (new) analysis click the yellow right arrow button. There is no limit to the number of cases you can "stack up" in Graphic Analysis. To throw away a case you no longer want, click the red X button. Note: When you click the Analyze button and the position is identical to a position you analyzed previously, a new case will not be added to the Graphic Analysis. Instead, it will replace the previous case with the new case. Why replace and re-analyze? Because you might have changed something besides the position (i.e. a model). When you have both existing positions and hypothetical trades in the Matrix at the same time, you can choose to analyze one, the other, or both by clicking the E (for Existing position), T (for Trade), and B (for Both existing and prospective trades) buttons located next to the Analyze button on the Matrix toolbar.

Including/Excluding Positions and the Independent Variable

You can selectively include/exclude options positions in a Graphic Analysis by clicking the expiration month headings in the Matrix. For example, with positions in both the May and June options of a particular asset, if you click the May heading (turning it a different color) and then click analyze, only the May options will be included in the analysis. To select multiple headings right-click on them (or hold down [Ctrl] while clicking further headings). With no month headings selected (default), all options positions will be included in an analysis. This same method can be used to select a different independent variable for the Graphic Analysis than the program would otherwise select. Just click the title bar of an actual or future (turning it a different color). For example, in an OEX matrix that includes the SP futures, the program would normally use the OEX index as the independent variable in a Graphic Analysis (because OEX options exercise into cash based on the index). However, you may click on the title of a futures contracts to have the program use that as the independent variable instead.

Superimposing Cases
If you like, you can click Superimpose Prev button to superimpose two or more cases. Each case will be shown using different colored lines. The position description box at the top will show a description of each cases positions, each in a color matching its line.

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You may superimpose any number of cases. The graph can get pretty busy, however. To clarify things, it often helps to drop the number of lines per case down to 1. When analyzing complex positions, you have the position description box use abbreviations when describing each trade, rather than the full descriptions as shown in the example above, by dragging the tiny slide switch to the left. Remember that you can use the yellow arrow and red 'X' buttons to move around between the various stored cases and to throw away those cases you no longer want to consider.

Graphic Analysis Connected to the Matrix

The first time you click Analyze from the Matrix, a Graphic Analysis window is created. Subsequent case analyses use the same Graphic Analysis window. Thus a Matrix has, at most, only one Graphic Analysis window connected to it. If you have two or more Matrixes open, each Matrix can have its own Graphic Analysis window open. When you close a Matrix, its Graphic Analysis window also goes away. For this reason a Graphic Analysis window tends to hang around at the bottom of the workspace. Even when you click Close, it only minimizes the window because were retaining previously analyzed cases in case you want to see them again. However, if you click the red X until all the stored cases are canceled and then click the Close button, the Graphic Analysis window will go away completely.

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The Detailed Analysis

To see a detailed breakdown of the calculations behind a selected line in the Graphic Analysis, place the wand at a specific price point (the wand may be moved left to right within the Graphic Analysis by dragging its handle). You can also type a price directly into the wand price field, or adjust the price by clicking on the left and right arrow buttons in the wand box. When you click on the Details button in the lower-right hand corner of the Graphic Analysis screen the Detailed Analysis window opens.

The upper section of the detailed analysis screen shows the date, underlying price, and any change in volatility being projected that is being used to generate the projected profit/loss for this trade. You can change any of the fields at the top and receive an instant re-analysis of the position based on the new information. In the middle section of the form, the detailed analysis shows both the opening and closing results for each individual leg of the position, as well as the total gain/loss projected. If any previously realized gains or losses are being included, this will be indicated on a separate line. The opening price, commissions (if any), and net are based on the actual information contained in the currently selected Transaction Log for existing positions. Prospective trades use the At Price shown in the Matrix (which is dependent on the slippage model selected) with the estimated commissions based on the schedule that is set up for the currently selected account. The value of the closing position is a calculated projection based on the Projected Date, Price and Volty change indicated in the fields at the top of the 80

form. At the bottom, your net profit/loss and the daily time effect is shown. Yield in this report is the total Profit/Loss divided by the Amount (of capital) Provided. Annual Yield is the yield divided by the fraction of the year projected in the analysis. The detailed analysis clearly demonstrates how OptionVue 6 takes slippage, commissions, dividends and interest earnings/charges into account with every analysis it performs.

Detailed Analysis in the Professional Edition

In the Professional Edition of OptionVue 5, you have the choice (located under File | Preferences, the first Misc tab) of using the standard Detailed Analysis or using a Market maker style report. The market maker style report contains different information form the standard detailed analysis.

This report is really designed to provide a market maker with a snapshot of their entire inventory of options in that asset. Instead of slippage and commissions, it displays the price, MIV, projected volatility, theoretical price, and all the Greeks for each individual option. It also displays the position totals for each of the Greeks in each individual item, as well as a cumulative total for the entire inventory of options and underlying shares for this particular asset.

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User's Guide

Risk Analysis Report

The Professional Edition also includes a Risk Analysis report that enables you to quickly create a report, suitable for printing, that gives a complete overview of all your positions in a single asset. Click the Risk button (located just to the left of the Tgt button) and the program gives you the choice of immediately printing the report or displaying a print preview prior to actually printing the report out.

The report includes a Graphic Analysis of your total position with individual breakdowns by underlying shares and option expiration month. There are also a number of specialized summary tables that allow you to see how risk is broken down by calls and puts, both long and short, as well as the total premium over parity by expiration month and the position residuals.

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Charting in OptionVue 6
Charts are important to traders of all kinds. A chart is a sequence of prices and values plotted over a period of time. Price and volatility is represented on the vertical axis and time is represented on the horizontal access. Time is plotted oldest to newest from right to left. The second and third buttons on the main toolbar are Price Chart and Volty Chart respectively. All charting in OptionVue 6 is done within the same form to give you maximum versatility. With a symbol selected in any list such as the Quotes Display, clicking the Price Chart button opens a daily price chart for that asset. Clicking on the Volty button opens a weekly Volatility Chart for that asset. The data for each chart is drawn from a historical price file held in the Hist folder off your main installation folder. OptionVue 6 creates and maintains historical price files through NetVue services. Historical charting data is free for all OptionVue 6 owners. When you first open any chart, if your local history file is lacking any records OptionVue 6 requests that data and NetVue quickly provides it. This happens automatically just prior to displaying the Price Chart. When working with historical files there must be a $ in front of index symbols and a & in front of the base future symbols. The historical data is kept in ASCII format. In addition, if the Quotes Display contains a quote that is more recent than the last record in the historical price file a red price bar and a blue volume bar are added to the end of the chart which reflect today's data and are updated live. The Price Charts in OptionVue 6 go back 20 years. They include a number of easy-to-apply technical analysis tools as well as some specialized tools designed especially for option traders such as options volume, open interest and put/call ratio charts, historical daily readings for implied and statistical volatility, the ability to analyze the potential profit/loss of any position in an asset relative to its past trading history, and setting targets that express your future expectations that are then used throughout the program. Volatility is a vitally important when trading options. Every asset has quiet periods when its options are cheap and volatile periods when its options are expensive. Professional options traders are always aware of current volatility levels in relation to historical context. To gain that perspective they view historical volatility charts. You, too, can do this with OptionVue 6. With up to ten years of implied volatility for most optionable assets in the U.S., OptionVue 6s Volty Charts help you see the "normal" volatility range, for modeling. They can also help you identify patterns (e.g., seasonal) or find issues whose options are chronically over or under valued which you can take advantage of. We will now go over the Price Chart and Volty Charts and explain how to use the various tools and features included.

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User's Guide

The Price Chart

Traders commonly use price charts to see a history of where an asset has traded so they can more accurately project where its likely to trade in the near future. To display a Price Chart for any asset, select the appropriate symbol in the Quotes Display and click on the Price Chart button located in the main toolbar.

The title bar displays the name and symbol of the asset as well as the DVO (dollar volume of options). DVO is in thousands of dollars. So in this example, the CME Group trades $2,190,000 of options a day, on average. with only a price chart displayed, both the left and right vertical axes represent price. The Wand Click anywhere in a Price Chart and a wand - or vertical line - appears. Move it left and right using the arrow keys on your keyboard. Specific data readouts for each day, week or month appear in the bottom of the window. Press [Esc] to clear the wand. The program remembers the wand position when browsing through Price Charts. Daily, Weekly, and Monthly Modes The OptionVue 6 Price Chart is a daily chart to begin with (each bar is one day). To switch to weekly, click the W button. To switch to monthly, click the M button. Click the D button to go back to daily mode. You can see up to a decade of price history in monthly mode.

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Split Adjustments You may occasionally need to adjust for a stock split. Place the wand on the first bar after the split and click the Split Adjustment button.

Enter the split ratio into the two fields of the dialog. For example, in a 2 for 1 split, enter 2 in the first field and 1 in the second field. Then click OK. The program will then adjust the chart. If the chart looks okay to you, click OK again to accept the change. The program saves the change to your historical price file permanently. Editing Data If you see a strange bar in your chart indicating bad data, or you see a missing bar that you would like to fill in, place the wand at the problem spot in the chart and click the Edit button. An Edit Data dialog box will appear.

Here you can change any incorrect data, or fill in missing data. Click OK when you are finished. Your changes will be saved to the historical price file and the chart will be redrawn. 85

User's Guide Refreshing your Price Data As much as we try to provide clean historical price files through DataVue, problems sometimes occur which leads to some bad bars in the OptionVue Price Charts. We eventually catch them and get our historical files cleaned up, but this does not fix the data you have already collected and stored in your computer. Click the Refresh button (which looks like a calendar) to bring up the "Refresh historical data since dialog.

Here you can enter a date. When you click OK, the program will automatically refresh all the data from that date forward. With a wand in the price chart, the date will be filled in automatically based on the wand position. You can also use this to add additional past data. For example, if you only have data showing as far back as January 2, 2002 you could input the date January 2, 1992 and the program will add the previous ten years of data top your chart. You can also access this feature in the Historical Prices Files Setup dialog under NetVue | Update Price Chart Files. Y The Zoom Buttons Click the Zoom In button for more space between the bars, and to see less history. Click the Zoom Out button for denser bars, and to see more history.

You can also resize the Price Chart window itself to see more or less history. Candlestick Charting You can also change the standard bar chart to a Candlestick chart. To switch to candlestick charting (and then back to bar charting) just click the candlestick button on the Price Chart toolbar that contains an image of candlesticks.

The Volty Chart

To open a volatility chart, select an asset in the Quotes Display (or any list of symbols within OptionVue 6) and click the Volty Chart button. 86

The chart form will open displaying a weekly volatility chart with up to ten years of volatility history. The title section of the chart always shows a description of the asset and its symbol and the DVO, just as when you are displaying a price chart. But with volatility data displayed the title section also includes SV and IV percentile figures. In the example above an SV percentile of 99 means that the current SV reading is higher than 99% of the past history of SV readings. The IV of 98 means the current IV reading is higher than 98% of all past IV readings. The Volatility Chart displays two lines - one for statistical volatility (SV) and the other for implied volatility (IV). The SV line (solid, dark red) represents, at each point, an exponential average of the underlyings daily price volatility over the previous 20 trading days. The IV line (dashed, blue) represents, at each point, one weeks average implied volatility. In other words, the SV line shows you the actual volatility of the asset, while the IV line shows you the volatility implied by the price of the options of that asset. They should normally be fairly close together. If they are not, it would indicate the price of the options is not reflecting the actual volatility of the underlying asset. You can also use the charts to find assets whose options are chronically under/overvalued. Volatility Charts are also useful for determining what normal volatility is. This can help you profit when current volatility temporarily goes much higher or lower than in the past. It can also be useful (depending on the asset) for spotting patterns or cycles in volatility you can take advantage of. The Wand. Click anywhere within the chart and a wand - or vertical line appears. You can move it left or right using the arrow keys on the keyboard. A box will appear in the bottom right-hand corner showing the data readout for the 87

User's Guide day you are on. Press the [Esc] key to clear the wand from the chart. The program will remember the position of the wand when browsing Volty charts.

Superimpose Buttons
The first two buttons in the chart form are for the superimpose buttons. They allow you to control what Price and/or Volatility data is displayed. The appropriate data is displayed when the price and/or volty button is depressed. You can also display both Daily Price and Volty simultaneously on your Charts. For example, after opening a Price Chart, click on the second button in toolbar to add the volatility lines to the chart.

The line representing SV is a solid, dark red line and the line representing IV is a solid blue line that is bolder than the SV line. The left-hand vertical axis continues to display the price of the underlying, but the right-hand vertical axis now changes to show volatility percent readings. Once you have superimposed the daily volatility history, you may click the first button to take away the price bars. Thus the first two buttons in the upper left allow you to alternately display or hide the volatility lines and the price bars.

Working With Targets in Price Charts

OptionVue 6 price allows you to set a price projection (target) right on the chart when price bars are displayed and transfer it for use in other options analysis functions (such as Trade Finder) for easier, quicker analysis. Just click the Target button, and youll see a blue rectangle appear to the right of the final bar. 88

Then you can use the mouse to move and/or resize this rectangle until it represents your opinion about the future price movement of this asset, in terms of a date range and a price range. You may also move and size the target rectangle using keystrokes (often better for fine tuning). Press Ctrl with the arrow keys to move the target. Press Shift with the arrow keys to change the size of the target. You can only have one target per asset. This is the same target used in the Trade Finder and the Graphic Analysis. You will see vertical lines labeled X1, X2, etc. This is a reference to the options expiration date, and is shown for convenience. You can move the target by clicking inside the target box and dragging it to the desired location. If you need more room to place your target higher, lower, or to the right (farther out in time), just move the target a little off the chart in the desired direction and release it. More space will open up. To eliminate a target (i.e. when you no longer have an opinion), click the Target button again and the target rectangle will no longer appear on your Price Chart.

Profit Zone
A unique feature called Profit Zone is available in the chart when price data is displayed and you have a position in the asset. Profit Zone allows you to see where a position will be profitable relative to the price of the underlying in the future, and is a valuable addition to the traditional Graphic Analysis of a position. With an existing position in a particular asset, click on the Profit Zone button in the Price Chart toolbar. The illustration below highlights the location of the button and the location of the description of the trade being analyzed:

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User's Guide The program opens up a space on the right that represents up to 3 months in the future. The area filled in with green is where the position is profitable, while red indicates where your position would theoretically be at a loss. Separating the two colors are breakeven lines. Also shown are expiration lines (marked with X1, X2, and x3) to indicate when the nearby, 2nd, and 3rd month options expire, with a description of the position being analyzed shown on the main toolbar. If you have the assets Matrix open while working with the Price Chart, Profit Zone pays attention to month header selections and the miniature Analyze buttons E, T, and B in selecting the position to be analyzed. When implementing this feature we felt it important to maintain the integrity of the horizontal axis; that is, to keep it representing just one thing time. This makes it possible to see how the profit zone changes over time, which can be an important insight for traders.

Technical Analysis Tools

There are several technical indicators built into OptionVue 6 that can be used with Price Charts. In addition to an automatically-fitted Trend line and a number of Put/Call Volume choices, the software allows you to set up moving averages, Bollinger bands, Acceleration bands, hand-placed trend lines, stochastics, relative strength (RSI), MACD, Momentum, and Momentum divergence. Some of these indicators appropriately overlay the price chart itself; others (the non-overlaid indicators) appear in a separate section beneath the price chart. The software is able to show just one overlaid indicator and one non-overlaid indicator at a time, plus any number of hand-drawn trend lines. With the last four buttons on the Price Chart toolbar, the user can turn indicators on and off, and change their properties.

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The first button (to the right of the Target button) is for showing/hiding the currently selected overlaid indicator, the second is for showing/hiding the currently selected lower chart indicator.

Setting the Indicators for the Upper and Lower Charts

The third button opens the following Indicators Properties dialog:

In the Indicators Properties dialog, you can select one overlaid and one lower chart indicator, and change their properties. The lower chart indicators, because of their nature, are not superimposed directly on the Price Chart, but displayed in a window below it, with the same time line as the chart above. Only one set of indicator properties is stored for the program, and will apply to all assets. The exception to this is the hand-drawn trend lines, which obviously need to be stored separately for each asset. As before, when you start the program, no indicators are displayed. Once you switch indicators on, however, they are on in every Price Chart you open until you switch them off. Hand-Drawn Trend Lines To start drawing the hand-drawn trend lines, first click to depress the last button, the one with the image of a pencil on it. Place your cursor where you want to begin drawing the line, then depress and hold down the left-click button to start

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User's Guide drawing a line. Drag the cursor to another location and release the button where you want to terminate the line. As mentioned earlier, you can draw any number of lines per chart. To delete the most recently created line, press the [Esc] key. Keep pressing [Esc] to delete more of the lines in LIFO order. After you have deleted the final hand-drawn trend line from a chart, the next press of the [Esc] key makes the pencil button go up and you are no longer in line drawing mode. Another way to clear all the hand-drawn trend lines for the current asset is to open the Indicators Properties dialog, check the box Clear all hand-drawn trend lines, and click OK. Put/Call Volume Data Click the Settings button for Put/Call volume ratio to bring up the settings box. Each line will be displayed in a different color in the lower chart, with a legend showing what each line represents. The Put/Call volume charts are based on data that is accumulated and stored in local files along with the historical price data (in the Hist folder). So when you receive updates for the Price Chart files you are also picking up volatility data and the Put/Call volume numbers.

Yate's Break Search

There is a stock timing feature built into OptionVue 6 called the Yates Break Search. This feature will search only the stocks in your Quotes Display, looking for ones that exhibit a unique price chart formation that often presages a sharp drop. Matrixes, Price charts, and Volty Charts can be browsed directly off of the results. Similar to Survey, Edit | Lookup, and OpScan Report windows, you can use either the Insert button or a double-click to send the selected item(s) to the Quotes Display. It can be accessed by clicking on the 'Y" icon in the main toolbar or by selecting View | Yates Break Search from the main menu.

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No results are guaranteed, of course, but Len Yates believes that when a stock has recently sold off sharply, rebounded somewhat, and then starts down again, it very often sells off further. The Yates Break Search looks for, and lists, all stocks exhibiting this pattern along with the stock's current price. To use this algorithm check the box labeled "Use original search algorithm. The second box allows you to restrict the search to "topping" stocks only. The third checkbox looks for stocks breaking down through an automatically fitted uptrend-line, which can be useful for catching a stocks very first breakdown after an uptrend. Users have the option of telling the program which algorithms to use. If you check both the first and last boxes, the program will list all stocks qualifying under either search algorithm. So the original search algorithm looks for stocks that have experienced a sharp sell-off, followed by a partial recovery, and then the start of another down-turn. You can further filter this search by listing only those stocks that have experienced an uptrend over the past several months. (The thinking here is that perhaps breakdowns off an uptrend are more reliable.) Note: Before the program can consider a stock for either of the Yates Break Search algorithms, there must be at least 180 days (eight months worth) of historical data in that stocks price chart file.

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User's Guide

The Portfolio Manager

OptionVue 6 comes with a sophisticated yet user-friendly portfolio tracking System. The Portfolio Manager is where you record and analyze your investment transactions. Designed especially for options traders, it contains powerful features not found in more general tracking systems.

Displays an up-to-the minute status of your account. Tracks an unlimited number of accounts. Includes realized and unrealized gains and losses, tracks performance, and generates reports. Automatically recognizes spreads, straddles, and other combinational trades. Automatically expires, exercises, and assigns your options.

Despite its sophistication, the Portfolio Manager is designed to be very straightforward and easy to use. It keeps you apprised of the current status of your account(s), and can generate many valuable reports.

Organization of the Portfolio Manager

The Portfolio Manager functions are organized into four windows: Account Information: Where you enter basic account information. Transaction Log: Where you enter and view all your transactions. Account Status: Where you can view the current status of your account(s). Reports: Where you view and print reports. These sections are accessed by the four buttons on the main toolbar:

Above these four buttons, the name of the currently active account will be shown. You can change the current account by clicking on the Account label above the Portfolio Manager buttons in the main form. This opens a drop-down list showing all existing accounts and you may select one. You can also change the current account from the drop-down menu at the top of any of the four main Portfolio Manager windows.

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Capabilities of the Portfolio Manager

Investments Accommodated Options Futures Equities Convertible bonds, warrants Mutual funds Physical commodities, currencies Transactions Accommodated

Buy/sell long Sell/cover short Partial sales Adding to existing positions Split Adjustments Dividends Interest Transfers (deposits, withdrawals, service charges, management fees) Option expirations, exercises and assignments

Functions

Handles any number of separate accounts Monitors cash availability Margin requirements Time-stamped executions Price and Volume alerts Position alerts Option expiration alerts Position grouping with names (e.g. SPRD, STDL, etc.) Sensitive information can be password protected

Reports

Transaction Log Realized Gain/Loss List of Accounts Dividends Interest and Transfers Performance Graph of One Account Performance Analysis Summary and Detail Performance Summary of All Accounts

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User's Guide

Portfolio Management Tools

Account Status Portfolio theta Beta for equities relative to ten available indexes Portfolio delta and R-squared relative to ten available indexes Asset delta relative to ten available indexes Ability to project and graph future portfolio movements relative to index HedgeFinder recommends portfolio hedge in index based on user input

Portfolio Manager Files

The OptionVue 6 Portfolio Manager creates and uses files in the "Records folder (usually C:\Program Files/OptionVue 6\records). The bodies of these file names are always equal to the account name. Here are their extensions:

ACT. Contains the basics about your account: Interest rates, brokerage choice, personal information, etc.. LOG. The Transaction Log. LOK. Locks records when OptionVue 5 is used by multiple users on a network. BK1, BK2. OptionVue 6 automatically makes backup copies of your transaction logs. If you somehow lose your Transaction information, simply rename one of these files to <Account name>.LOG and you will salvage all the information up to the last backup. PCL. Contains information about the parcel function. PSN. Contains the information about your open positions. PRP. Contains properties (like form size and column widths) for each accounts Transaction log, Account Status and Reports. A file for each account is created the first time you customize any of these reports (like change a column width). If you ever mess up the layout of one of these reports you can always delete the *.PRP file for that account and then your reports will revert to the default formats. HST. Contains a daily history of the net value of this account. This file is updated each time the user opens the Account Status and then clicks OK to leave. This file is a simple ASCII file, and is easily edited using any common editor program (e.g. Windows "WordPad"). LGN. Contains the text entered in the notes field of the Transaction Log. LGN files associate with LOG files, and whenever you copy a LOG file, you should also copy the LGN file. LG1, LG2. OptionVue 6 automatically makes backup copies of your LGN file. If you somehow lose your Transaction information, simply rename one of these files to .LGN and you will salvage all the information up to the last backup.

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Super Accounts. Super accounts do not have their own Transaction Log, but rather pull their information from the included accounts. For this reason, the only files associated with super accounts are the ACT, HIST, PRP files plus a file with the extension .ACV that tracks which accounts are included in the super account.

Super Accounts
A special type of account, called a super account, is available. Unlike the regular accounts, a super account does not have a Transaction Log of its own. Instead, it draws information from the Transaction Logs of one or more regular accounts to produce a consolidated account status and consolidated reports. To start a super account, click the New button in the Account Info screen. Enter an appropriate name for the account and click the "Make this a Super account checkbox. Then click OK. The Account Info screen will then display a list of all available regular accounts. Checkmark each of the regular accounts you would like to include in this super account. Now when you make the super account the active account, the Account Status window and all Reports reflect the combined transactions and positions of all the selected accounts. Note that since a super account does not have its own T.Log, whenever you select a super account as the currently active account, the T.Log button in the main toolbar is grayed out. Two other buttons that will also be grayed out in the Matrix: Convert Trades and Expire Options. Also note that a super account does not have its own commission schedule, securities margin parameters, and earnings and charge rates. However, a super account does have its own open positions evaluation preferences, report formats, and Instant Reports setting. If you change the constituent accounts of a super account, the program deletes the account value history file of the super account. This causes the program to automatically re-construct the super accounts history by merging the histories of the constituent accounts. When using a Super account, there is a checkbox in the Account Info screen called "Sum the performance histories. This was created because the performance history of a Super account needs to be handled differently when reaggregating an archived account with its original account than when aggregating individual accounts. When re-aggregating an archived account with its original account you will want to have this box un-checked so the program doesnt double up account values during the time period covered by the archived account. When aggregating individual accounts you will want this box checked so the program sums the performance histories. Note: positions from separate accounts are not grouped when viewing the Status of a super account.

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User's Guide

Printing Reports
To print any portfolio manager screen or report, use the Print button or the Print Preview button on the screen itself. OptionVue 6 remembers your favorite printer orientation (portrait vs. landscape). You may indicate whether you want snapshot prints to invoke the printer dialog before printing. This is done in File | Preferences in the main menu, under the Settings tab. Simply click on the appropriate checkbox at the bottom of the Preferences dialog box. Formatting Reports for Printing. Any Report, including the Transaction Log, and the Account Status will print like you see them on the screen, with the same column widths, etc. You must format them on screen before printing. For example, if you want a column wider, drag it wider before printing (or previewing). To drag a column boundary, place the cursor in the heading area (the cursor changes into a "boundary cursor when you are on a column boundary) and then click and drag the boundary. You can click the Preview button to see how the report will print then you can print right from the Preview screen by clicking Print there. You can eliminate a column by dragging the columns right border all the way to the columns left border. If you want an eliminated column back, just drag it open again. Click the Show All Columns button to widen eliminated columns enough to grab with a mouse. Column widths are saved when you press OK or Close. Batch Printing of Reports. There is a feature for batch printing Portfolio Manager Reports accessible through File | Print Reports in the main menu:

Here you can select any number of available reports plus any number of available accounts, and when the process runs, it will print the requested reports 98

for all the indicated accounts. You may run this process immediately or schedule it to happen in the future or at regular intervals. Make sure your printer settings are set for optimal printing. If you choose to print all the reports, don't forget that some are so long they are optimally printed in landscape orientation. Also, make sure you go into the reports section first and set the specified dates (since some reports require you to set the dates you want to print). All accounts will use the dates the reports are currently set for.

Exporting Data from the Portfolio Manager

OptionVue 6 can export the contents of the Transaction Log, Account Status, Survey, TradeFinder, and any of the Portfolio Manager Reports (except the Performance Graph) to a comma-delimited file (suitable for Excel and many other programs) using the Print To File function in Windows. This can be done by clicking the Print button on the window itself and then checking the "Print To File" checkbox. The setting that causes a print dialog box to be available is under File | Preferences in the main menu, under the Settings tab. Make sure the "Snapshot print invokes print dialog" setting has a check in the box. Once you click the print button, Windows will ask what you would like to name the file and what folder you would like to place it in. When using the print to file with the Transaction Log, you will also get a dialog asking you what date range you want to export. You can also export the T.Log directly to a csv file by selecting Options | Export to csv from the T.Log menu.

Account Information
Click the Info button on the main toolbar to see basic account information.

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User's Guide OptionVue 6 comes with an account (named Sample) already set up, but it is not required that you to keep it. You can set up as many accounts as you wish. OptionVue 6 holds all the basic information for each account you set up. The name of the currently active account is always displayed in the main toolbar above the Portfolio Manager buttons, and in the main title bar at the top of the program. In the Portfolio Manager, everything begins with the Account Name. Just choose the account you want to make active (i.e. the one you want to work with right now) from the drop-down menu. Note that beneath the Account name is a checkbox that allows you to close an account. With this box checked the account assessment process will not keep adding data points to the history file. The Archive function automatically closes archive files.

Starting a New Account

You can start a new account by clicking the New Account button, then entering an appropriate name. Some ideas might be: Someones name, your brokerage firm, various accounts you have, or the kinds of trading you are doing in each account. For example, suppose you do speculative trading in one account and covered writing in another account, such as your IRA. You might name the first account "Option Trading" and the other "Roth IRA".

Then, each time you work with OptionVue 6 to consider trades, you will want to make your speculative trading account active. Each time you work with OptionVue 6 to consider covered writes you should make your covered writing account active.

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A special account, which we call a "super account", is also available. Unlike the regular accounts, a super account does not have a Transaction Log of its own. Instead, it draws information from the Transaction Logs of one or more regular accounts to produce a consolidated account status and consolidated reports. To start a super account, enter an appropriate name for the account and click the "Make this a Super account" checkbox. Then click OK. The following information dialog will be displayed.

To the left will be a list of all your available regular accounts. Checkmark each of the regular accounts that you want to include in this super account. Starting Date and Amount. When setting up a regular account, once you click the OK button (after typing in a name) a pop-up dialog will ask you the date you want to start the account and your initial deposit.

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User's Guide The amount you enter for this first deposit is very special, as it becomes what the program considers the original investment. An accounts original investment is used as the "basis when doing a performance analysis. You might also consider going back to the beginning of the year as the starting date of the account so that you get a tax report for the complete year. If you do this, you will also have to go back and enter all your transactions for the year. You can also import files text and quicken files directly into the Transaction Log. Note: Super accounts do not require a starting Date and Amount

Other Account Information

OptionVue 6 holds some basic information about each account that you create. The information it keeps is as follows:

Personal information (name, address and phone number). Password (optional). Interest rates that apply to the account. Settings for the Trade Button. Securities Margins. How Open Positions are valued and sorted. Your choice of securities commission schedule, if applicable. The futures and futures options commission rates, if applicable.

When you start a new account, make sure that these items are set appropriately. We will go over each of these sections in detail in the next sections.

Rates, Instant Reports, Trade Button, and Securities Margins

There are three Interest rates associated with every trading account:

Credit Balance Earnings Rate: Enter the rate idle funds earn in your account. Debit Balance Earnings Rate: Enter the rate charged when you run a debit balance in your account (e.g. when you buy stock on margin). Short Stock Earnings Rate: Enter the rate your account earns on short stock positions (typically only market makers and other professionals entitled to this).

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If you are not sure what to enter for any of these fields, simply input zeros. You can always come back and change them later if you desire. Instant Reports. Leave this checked to have your reports instantly calculated. If you have a large Transaction Log and it takes a long time to get the specific report you want, then uncheck this. A Go button will appear on the Reports screen. In this 'mode, Reports are not generated until you click the Go button. Configure Trade Button. Click on the Configure Trade button to open the following dialog box.

Here you tell the program what to do when you click on the Trade button that is located on the main menu. If you have an account with one of the brokerage firms we have an interface with, their name will be available in the drop-down menu. Depending on the firm, this may require additional information such as account ID and password, or the folder where their trading software resides on your computer. With an available broker selected, clicking the Trade button will automatically populate your broker's execution screen from any open Matrix that has a position in the Trade field. All you have to do is look over the trade, make any adjustments needed, and then send the order. For those using brokerage firms that are not currently available in the drop-down menu, you can still set the Trade button to open a browser to your favorite website. This could be your brokerage firm, a useful financial website, or any website you desire. Securities Margins. Click on this button to enter the margin requirements that you will experience with this account. The following dialog will open.

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User's Guide

Initially, these parameters default to the exchange minimum requirements. However, many brokerages require more than the exchange minimum. These settings are account-specific, so you can have different margin settings on different accounts.

Open Positions
This section allows you to tell the program how you want your open positions to be handled throughout the program:

Beta Base. This drop-down menu contains a list of ten popular indexes that might be appropriate for hedging a portfolio. Set this to the index that most closely matches your stock holdings. For example, the QQQQ would undoubtedly go best with a portfolio of tech stocks. To support this feature OptionVue calculates a Beta figure for every stock and index for each of the Beta/Delta Base indexes as well as R-squared numbers. Every beta has an R-squared number associated with it. R-squared (R2 for short) is a number between 0 and 1 that indicates how reliable the beta number is, the higher the better. To assist in selecting the best fit beta/delta base, the drop-down list in the Account Status displays your portfolios weighted average R2 number next to each available beta/delta base. 104

Important Note: For the program to calculate current Betas and Portfolio Deltas for your account, you must have the selected Beta Base index set up in your Quotes Display and have a current quote for it. Valuation to include Slippage/Commissions. This determines how your open positions are valued in your Account Status. Check these boxes if you want a more conservative evaluation of your open positions - one that considers closing slippage and commissions estimates. This setting can be changed at any time for each individual account in the Account Status window as well. Sorted. You can choose to have open positions listed chronologically, alphabetically, or by expiration date. This setting can be changed at any time for each individual account in the Account Status window as well.

Including Previously realized Gains/Losses

The open positions section of the Account Information window has a "G/L to include previously realized G/L" checkbox available which is off (unchecked) by default. Checking this box enables you to have the gain/loss of your open positions include previously realized gains/losses from associated positions. After selecting this feature, another checkbox then becomes available that is labeled "Adjust open position's original net and original price". After going into Account Info and changing the state of the Include Previously Realized Gains/Losses checkbox, when you close the Account Info window, any open Matrixes are automatically updated. Many trading strategies incorporate the idea of making adjustments or additional trades over the life of a position, usually related to the passage of time or changing market conditions. For example, an ongoing stock position that once had a covered call associated with it can have the realized gain/loss from that now-closed call option included in the stocks cost basis and unrealized gain/loss. It is also useful for other strategies, such as selling against LEAPS, or with complex delta neutral trades where you may enter and close multiple legs before finally exiting the trade as a whole. When including previously realized gains/losses, the program automatically finds any closed positions that overlapped (in time) with your open positions and that would have been considered "grouped" with the existing positions using standard grouping rules (which are defined in detail within the section on the T.Log). Any realized gains/losses so derived affect the summary section of the Matrix, the Graphic Analysis, the Detailed Analysis (off the Graphic Analysis), and the lower section of the Account Status. They do not affect any fields in the summary section of Account Status, nor do they affect any of the Portfolio Manager Reports in any way. 105

User's Guide Account Status. The Gain/Loss and %G/L columns are adjusted appropriately when including previously realized gains/losses. There is also a column parameter called "Prev Realized G/L" that is available to show amount the program is computing. You may want to add this to your Account Status so you understand how the program is valuing your open positions. If you have also chosen to adjust the open position's original net and original price, the Original Cost/Proceeds and Original Price columns are also adjusted appropriately, and any other place in the program where original price is displayed (such as the Matrix and detailed Analysis). This feature is most useful for those that write options against another item. For example, an ongoing stock position that once had a covered call associated with it can have the realized gain/loss from the now-closed covered call be lumped in with the stock, changing the stock's original price and cost (proceeds). Detailed and Graphic Analysis. With this mode turned on, the Graphic Analysis shows "Prev Realized G/L $__" in the position summary box at the top. This allows you to see that the program is including this in the analysis. Likewise the Detailed Analysis off the Graphic Analysis includes an extra line item that says "Previously Realized G/L $__". Note that including previously realized gains/losses will not affect the shape of the risk curve in any way. It will simply shift the curve up or down by the amount of the previously realized gain/loss being included. Matrix. When the Gain/Loss field in the Summary section of the Matrix includes previously realized gains/losses, there is an asterisk next to that field. You can click on that asterisk (which changes into an 'x) to temporarily exclude previously realized gains/losses for this asset. Clicking the 'x will change it back into an asterisk, and previously realized gains/losses are included once again. When you click the Analyze button, the resulting graph follows the current state of the Gain/Loss field in the Matrix. This feature gives you another way to look at your positions when making you trading decisions. Including previously realized gains and losses when analyzing your open positions is primarily designed for use with strategies that require you to make adjustments over the life a trade. The mode can be easily switched on and off, enabling you to see two different views of your open positions. Just make sure you understand what portions of the program are being affected, and what values are being adjusted when making you are making your trading decisions.

Securities Commissions (Account Info)

In the bottom left-hand corner of the Account Info window are your Securities Commissions. Click on the Schedule button to open the following window.

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The commission schedule has three main sections: Stocks, Bonds, and Options. Stocks. The first choice in this section is if there is a breakover point for commissions for your brokerage firm. If not, just choose "None" from the dropdown menu. The other choice is "Number of shares". Brokerage firms today often charge a flat fee per stock transaction below a certain number of shares. If that is the case with your firm, enter the amount of the fee here. The next three fields are available only if you chose a breakover point. It tells the program what to charge above and below "X" number of shares, with "Num shares X" being the number of shares that is the break point. If you chose "None" in the drop-down there will instead be a field to input a per-share fee. Transaction base fee refers to a fee that is added on in addition to any per-share charges. Only a few brokerage firms have this type of fee. Finally, there is a Transaction Minimum. If there is not a flat fee for a certain amount of share with your firm, but they do have a minimum ticket charge, enter that amount here. Bonds. Bond commissions are typically straight forward, with a per bond charge and, usually, a minimum transaction fee. Again, if they have a base fee that any per-bond charges are added to, enter that amount in the appropriate field.

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User's Guide Options. Options also have breakover points, with some firms doing it by price, others by number of contracts. Choose the appropriate one, if applicable, from the drop-down menu. Most firms then have a per-option charge, usually with a transaction minimum (if you only do one contract for example). If they have an additional base fee per transaction, be sure to enter it here.

Futures Commissions
In the bottom right-hand corner of the Account Info window are your Futures Commissions. Click the Schedule button to open the following window:

Under futures commissions, you can enter the dollar amount per contract or a percentage charge for the opening and closing transactions for futures and futures options. Most futures commissions are round-trip, meaning there is a single commission charged at either the open or close. If your account is for securities only and you do not, or cannot, trade futures it really makes no difference what is entered. Remember that when you trade the underlying futures themselves, no "purchase" or "sale" is actually made. Instead, you are going long or short, which has a required margin. So while the price will be entered in your Transaction Log, the only figure you will see in your "Net" field is for the commission.

Password and Personal Info

You can protect sensitive account information (the Transaction Log, Account Status, and all Reports) from being seen by unauthorized persons. To enter a password, click the Password button and enter your new password.

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Important Note: Once a password is attached to an account no one can access the Transaction Log, Account Status, or Reports without entering the password. It is crucial you remember this password. If you forget it, OptionVue Systems has no way of finding out what it is or helping you get back into your account. To make a change to an existing password, click the Password button. Youll need to enter your current password, and then the new password. Next to the Password button is the Personal Info button:

This allows you to attach some basic personal information to each account, especially helpful if you are managing accounts for multiple customers.

Deleting an Account
To delete an account, choose the account you want to delete from the drop-down menu and press the Delete Account button. A confirmation dialog will appear, asking if you are sure that you want to delete this account:

Once you say yes there is no way to recover files unless you have a backup.

The Transaction Log

The Transaction Log (T.Log) is the central point for all the information in OptionVue 6's Portfolio Manager. Here you enter all of your buy and sell 109

User's Guide transactions, the expiration, exercise or assignment of options, deposits and withdrawals, any dividends and cash transfers, service charges and management fees; in short, everything that happens to your account. All purchases and expenses posted to the T.Log are deducted from an internally maintained cash balance, and all sales and income are added to it. To see the Transaction Log, click the T.Log button on the main toolbar:

OptionVue 6 keeps a separate Transaction Log for every account. All the accounts you have created (except super accounts) will be available to choose from the drop-down menu at the top of the dialog box. Simply click on the account name to specify which account you want to work with and that accounts Transaction Log will be displayed. There is no limit to the number of different accounts or the number of transactions you can enter. When displaying the Account Status, as well as when producing reports, OptionVue 6 draws almost all of its information from the Transaction Log. The only thing the program needs to look for elsewhere is current price information. For current pricing, OptionVue 6 goes to the asset files and the Quotes Display. The first time you go into the Transaction Log of a new account, it will contain only the initial deposit information you gave the program when you started the new account. If you did not put the initial deposit in at that time, it will be empty. The first transaction for a new account should always be a deposit of funds. The amount you enter for this first deposit is very special, as it becomes what the program considers the "original investment. An accounts original investment is used as the "basis when doing a performance analysis. After entering the initial deposit, the next thing you might need to enter are the opening transactions for all your existing positions. Before the Portfolio Manager can recognize your existing positions, you need to enter the transactions you made that put you into those positions. To make things easy, you can transfer

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buy and sell transactions directly from the Matrix into the Transaction Log using the Convert Trades button. In addition to your currently open positions you might also want to fill in all the transactions you have made in the present year so that the system can give you a complete tax report at the end of the year.

Date, Time, and Code Fields

The available fields for a transaction are arranged in the following order in the Transaction Log: Date, Time, Code, Qty, Symbol, Type, Price, Commis, Net, R, Desc, Asset File, and Notes. We will go through each field individually to explain their meaning and use, followed by examples of each type of transaction. Two fields are absolutely essential with all types of transactions: Date and Code. You must fill in these fields for every type of transaction you enter. Date and Time are the first two fields available. While you must fill in the Date field for every transaction, Time is an optional field provided mainly for your convenience. However, Time also plays a special role in the function we call "grouping". (You can read all about Grouping in the Account Status section). Time should be entered in 24-hour format (i.e. 1:00 P.M. => 1300). If you just type the four digits the program will insert the : for you. Code indicates what type of transaction this is. The table contains a complete list of all the available codes along with a short explanation of its meaning. Code Buy Sel Xpr Exe Asn Dep Wth Div Int Adj Svc Mgt Reb Inc NTD Meaning Buy Sell Expiration Exercise Assignment Deposit Withdrawal Dividend Interest Adjustment (Stock Split or Dividend) Service Fee Management Fee Rebate Income Non-Taxable Distribution 111

User's Guide The transaction code can be entered by clicking in the field and selecting the desired choice from the drop down menu, or by pressing the first letter of the desired choice (and then the second, if more than one code begins with the same letter). Depending on what kind of transaction it is, some or all of the other fields within the line are required. Once you've learned the meaning of these fields, it will become obvious which fields are important with each type of transaction. If you do happen to leave out anything essential, however, the program will remind you of it when you try to leave the Transaction Log. Instead of letting you leave, your cursor will be placed right into the problem field, and a warning dialog will tell you to complete the information at the cursor location. Below are some special situations we would like to point out. Depositing Shares and a Physical Commodity. You can deposit shares of stock or units of a physical commodity into an account. This would be done when the stock or physicals were not acquired by purchase (at least not within the time frame of the current account), or when it would not be appropriate to enter a "buy transaction. An example would be when shares of a particular stock were gifted to you and you then deposited the shares into the current account. You would enter this transaction by typing it manually into the T.Log using the "Dep" transaction code. You could also enter this type of transaction by opening the asset's Matrix, entering an opening trade of the correct quantity in the Trade field, doing a Convert Trades operation, and then opening the T.Log to "fix" the trade as follows: Change the transaction type from Buy to Deposit, change the transaction date to the acquisition date for tax purposes, change the price to the effective basis price for tax purposes, and otherwise make sure all the information is correct. An example when it would be appropriate to deposit units of a physical commodity would be when a farmer wants to reflect the estimated size of his crop for a particular year. This would be the first step in preparing to model potential futures or options hedges against that crop. If a deposit of shares of stock or units of a physical commodity can is the first transaction in a T.Log then the net value of that deposit is considered to be that accounts initial value. It is also possible to withdraw shares of stock or units of a physical commodity. This transaction will lower the accounts value without posting an offsetting cash proceeds. Starting Value. A special transaction type called "starting value uses the code StV. This is used only to allow the Archive feature to automatically create a starting value from a date other than the original starting date. When the 112

software computes the value of a super account it passes over (ignores) any starting value records.

Qty, Symbol, and Type Fields

Qty is short for Quantity, the number of securities involved in the transaction (i.e. "100" for 100 shares of stock or "10" if you are buying 10 of a particular option). Symbol is the symbol of the security. The symbol entered should agree perfectly with the symbol used in OptionVue 6 for the item (if you are unsure simply open its Matrix and check the symbol there). If the symbol entered does not agree perfectly with the symbol OptionVue 5 uses, the Portfolio Manager will not be able to find a current price when it needs to. OptionVue 6 uses standard industry symbols throughout. Type is always required when Symbol is required. Type is a single letter indicating the kind of item. The available choices are listed below with a brief explanation. B C E F G I M O R S Bond Physical Commodity Physical Currency Futures Contract Futures Option Index Mutual Fund Option Contract Cash-settled Currency Option Stock

When you click in this field, a drop-down list appears with the codes and meanings. Type is necessary for distinguishing between items which have the same ticker symbol. For example, the potentially ambiguous symbol "TIF could either identify the stock "Tiffany or one of the call options on AT&T stock. If you enter the type as "S", you are saying TIF is a stock. If you enter type "O", you are saying TIF is an option.

Price, and Commissions, and Net Fields

Price is the price of an item. There are a couple special things about the Price field. If you enter a price before the Asset File field is filled in, the program may not know how to properly display this price information and will default to decimal format with four places. This will correct itself as soon as the Asset File field is filled in. 113

User's Guide You can also change the smallest tick of the Price of a specific item by right clicking in the price field. This is to allow you greater precision in this field in case an order is filled at a price different than the smallest tick or you need to enter an average price. Commis is short for Commissions, the total commission paid for this transaction. Net is the net amount of the transaction. It should be a positive number whenever there is a credit to your account (i.e. when selling something). It should be negative whenever there is a debit to your account (i.e. when buying something). The program will compute Net and fill it in automatically for you as soon as you have finished entering the in formation in the Quantity, Price, and Asset File fields. The program re-computes the Net any time you change the Quantity, the Price, or the Commission. You can also input a number manually into this field. The Net field allows numbers up to $999 million.

Description and Asset File Fields

The Description field is for entering a long-hand identification of the item that was transacted. For option trades, the description will normally contain the name of the option, i.e. "MSFT Dec25 calls". In transactions other than buy and sell transactions, you can use this for any notation you might want to enter with the transaction. The Asset File field is required with all buy and sell transactions, except mutual funds, bonds, or stocks. It is the full name of the asset file where the program should look whenever it needs a current price for the transacted item, as well as other information about the transacted item. This establishes the link between the transacted item and the file containing its information. When entering a stock transaction, it is best to enter the name of the stocks asset file, if you have one. Otherwise, you can leave the Asset File field blank. If you enter the file name without its extension, the program will look it up and fill it in, if possible. OptionVue 6 already has detailed information about your favorite assets within its files. These are the files you already know how to create and maintain using the program. (Every time you open and close a Matrix, you are loading and saving an asset file.) OptionVue 6 will do as much as possible to fill in information for you automatically. After you enter an items symbol, if the program can find the item in the current or most recently referenced asset (in the Transaction Log) it will fill in the Type, Description, and full Asset File name for you. It will also fill in these 114

fields if it can find the item in your existing asset files (it has to have at least the body of the Asset File name first). The Asset File entry is needed for the program to look up the appropriate multiplier, (e.g. the multiplier for most stock options is 100). There is only one exception to this: If you have coded the transacted item as a mutual fund, a multiplier of one is assumed, and there is no need to fill in the Asset File field.

The Recon Field

The column titled R stands for what we call the "Recon" field, which is an abbreviation for "reconciled". The Recon field is just one character in length. The Recon field is used for two distinct purposes. The first purpose of the Recon field is to let you see which transactions have been reconciled with your confirmation statements. Reconciled transactions contain either a zero-slash character or an upper case letter in the Recon field. For unreconciled transactions, the Recon field is either blank or contains a lower case letter. You can click in the Recon field and change it. However, you will often rely on the program to trigger changes in the Recon field automatically. The event that triggers a zero-slash character to appear in the Recon field is when an entry is typed into the Net field or the Commission field. Once the Recon field displays a zero-slash character or upper case letter, it will never automatically return to blank or lower case. Therefore, when you type a transaction by hand into the Transaction Log, the Recon field automatically displays a zero-slash character. However, when you enter transactions from the Matrix the Recon field remains blank, since the commission charge is only considered an estimate. Once you receive a trade confirmation from your broker, you can make any necessary adjustments. When you do, the Recon field changes automatically to display a zero-slash character if it was blank, or an upper case letter if it previously held a lower case letter. If the trade confirmation shows a small SEC fee or any other fees, you may combine these in with the commissions. When reconciling your trade confirmations, if the commissions and the net already perfectly agree just place your cursor in either the Commissions or the Net field and press the left and right bracket keys on your keyboard once each. The temporary change to the Commissions or Net field triggers the desired change to the Recon field. The second purpose of the Recon field is to assist in "grouping". Grouping is discussed later, in the section on the Account Status. It is for grouping that you 115

User's Guide will sometimes be typing letter codes into the Recon field. This function allows you to group trades together (such as a spread where you entered the legs at different times) and is especially useful if you have chosen to include previously realized gains/losses.

The Notes Field

The Transaction Log has a Notes column at the far right, which works much like the Notes column in the Quotes Display. Use it to record your rationale for a transaction, or market conditions at the time of the trade (e.g. volatility level), etc. You may type directly into the grid, or double click (or right click) the appropriate cell to open up a notes window to make it easier to see all the text for a particular record. Important: Text that the user enters into the Notes field is kept in a separate file named <account name>.LGN in the RECORDS subfolder. LGN files associate with LOG files, and whenever you copy a LOG file, you should also copy the associated LGN file. Just as LOG files are automatically backed up into .BK1 and .BK2 files, .LGN files are automatically backed up into .LG1 and .LG2 files.

Entering Cash Transactions

There are some cash transactions that can only be entered manually that may need done when you reconcile your Transaction Log with your brokerage statements. These include: Deposits, Withdrawals, Interest, Dividends, Service Charges, Management Fees, Rebate, and Non-taxable Distributions. Deposits and Withdrawals. Whenever you make a deposit or withdrawal to your brokerage account, you will want to make the same entry in your T.Log. The only fields required are the date, code (Dep or Wth), and Net (where you input a positive number for the amount that you deposited or withdrew). Interest. This code is used if your account earns interest from a money market account or other sources, or if you are charged interest for borrowing money from the brokerage firm (for example, because you bought stock on margin). Once you receive your account statement you simply enter a line in the transaction log representing the amount of interest earned or charged to you during that period. The only fields required are the Date, Code (Int), and Net (where you input a positive the amount of Interest that was received by you, or a negative number charged to you). To enter a line for interest earnings, type the date, set the transaction type on [Int], and enter a positive amount in the Net field. Dividends. Dividends are where you receive a distribution of cash from company in which you hold shares. In addition to entering the Date, Code (Div) 116

and a positive amount in the Net field, this transaction also requires that you enter the item's symbol in the Symbol column and choose the correct instrument type (i.e. an 'S' for a stock). Service Charges and Management Fees. Many brokers charge fees for a variety of services and for managing your account. You can choose either of these fee transactions to track these charges as you like. The only fields required are the date, code (Svc or Mgt), and a positive number in the Net field. Rebates and Non-Taxable Distributions. These are special types of transaction that result in cash being credited to your account that is not taxable income. Rebate (Rbt) is designed primarily for brokers that rebate some or all of your commissions back to you based on a special deal or volume discounts. The fields required are the date, code (Rbt), and a positive number in the Net field. A non-taxable distribution (NTD) occurs when a company (or more commonly, a mutual fund) makes a distribution to shareholders that is not attributable to earnings. These non-taxable distributions, also known as a return of capital, represent a return of your investment principal. When there has been an NTD, it is not taxable because it is simply a return of part of your investment. In addition to the Date, Code (NTD) and a positive amount in the Net field, this transaction also requires the item's symbol in the Symbol column and the correct instrument type (i.e. an 'S' for a stock). The NTD transaction will automatically lower your cost basis in the stock and makes a proportionate adjustment to the original transaction price. Non-taxable distributions cannot reduce your basis below zero. If you receive returns of capital that exceed your original basis, the excess must be reported as a longterm capital gain. Note: Nontaxable distributions are not the same as the tax-exempt dividends. While tax-exempt dividends are not taxable, they do not affect the basis.

Entering Transactions from the Matrix

You can transfer buy and sell transactions directly from the Matrix into the Transaction Log by clicking the Convert Trades button. This is the easiest way of entering new transactions into the Log, because it transfers all the relevant information automatically. To prepare for a Convert Trades operation, you should first make sure there are no positions in any Trade fields in the Matrix other than the ones representing your actual trade(s). A quick way to clear many trades is to select Clear Matrix | Opening Trades from the main menu. 117

User's Guide For each "leg" of your trade you should enter the quantity of your trade into the Trade field of the transacted item, and the price of your trade into the At Price field of the transacted item. You will notice that the program computes and fills in a likely At Price based on the item's current market price. If this is not the actual price of your trade, you can correct it by clicking on the field and changing it. Then you can go ahead with the conversion. When you hit the Convert Trades button, the program takes whatever positions you have in the Trade fields in the Matrix and makes them into real transactions by adding new record(s) into the Transaction Log. If your program receives continuous price updates, the "At Price could change before you Convert Trades. However, you can always check the Transaction Log and correct the price there. Once this is done, the program merges the information from the Trade fields into the Existing Position fields in the Matrix, and clears all Trade fields. It also merges information from the At Price fields into the Original Price fields, and clears the At Price field. When adding to an existing position, a new Original Price is computed based on a weighted average of the two original prices. If you happen to Convert Trades by mistake, to undo the error go into the Transaction Log and delete the newly added lines. This will immediately roll back most of the associated changes in the Matrix. The only other thing you need to do is re-enter positions in the Trade fields in the Matrix, if you wish.

Special Closing Options Transactions

There are three special closing transactions that apply to options. Holders of option contracts have the right to do more with their options than just sell them back on the market. They can let them expire worthless, or exercise them. Writers of options can also see their options expire worthless. In addition, an option writer can be assigned. It's up to the user to enter a closing transaction for every option. Come expiration day, you must enter something that tells the program what happened. You identify these kinds of closing transactions in the Transaction Log using special codes

Xpr - Expiration Exe - Exercise Asn - Assignment

Fortunately, OptionVue 6 has a function that can automatically enter expirations, exercises, and assignments into the Transaction Log based on information in the Matrix (more on this later). Nevertheless, for your understanding, here is an explanation of what needs to be entered in various situations: 118

Expiration. When you have allowed an option position to expire worthless, you must enter a line using the expiration transaction code Xpr. The other required fields are Date, Quantity, Symbol and Type. There is no need for any Price, Commissions, or Net, as these are assumed to be zero for an expiring option. Below is an example.

Exercise into Actuals or Futures. Any time you exercise an option position that results in a position in an underlying actual or future, you need to enter two line transactions: One for the option exercise (code Exe) and one for the transaction that opens the new position in the underlying.

In the example above, the exercise of 10 CitiGroup call options is entered on one line with no Price, Commissions or Net. That is because, strictly speaking, there is no cash flow associated with the option itself when you exercise it (except for a possible extra commission). However, the resulting purchase of 1,000 shares of the underlying stock does create cash flow. Enter this on a second line as a Buy transaction, with a price equal to the strike price of the option. Below is an example using a put, with the exercise of 5 CitiGroup puts resulting in the sale of 500 shares of CitiGroup common stock.

Exercise into Cash. Some options are cash-settled. Any time you exercise an option position that converts into cash, you need only enter one transaction: The option exercise transaction itself (code Exe). In this case you must fill in the Price, Commission and Net fields, since the transaction produces cash flow. Assignment of Actuals or Futures. When the holder of a short option position is assigned, and the result is a position in an underlying actual or future, you must enter two separate transactions, one for the option assignment (code Asn), and one for the transaction that opens a new position in the underlying.

In the example above, the assignment of 10 CitiGroup call options is entered on the first line with no Price, Commissions or Net. Again, there is no cash flow associated with the option itself. However, the resulting sale of the underlying

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User's Guide stock does produce cash flow. You enter the sale of the stock on a second line as a Sell transaction, with a price equal to the strike price of the option. Assignment into Cash. When you are assigned on a cash-based option position, you need to enter just one transaction: The option assignment transaction (code Asn). In this case you must fill in Price, Commission and Net fields, as assignment of a cash-based option produces cash flow.

Automatic Entry of Expirations, Exercises, and Assignments

You can have the program automatically enter special closing option transactions into the Transaction Log based on existing positions in the Matrix. To perform this, click the Expire Options button on the Matrix toolbar. The following message will appear.

Click the OK button to expire the nearby options in the currently active account, in this asset only. Click the All button to expire the nearby options in all assets (still in the currently active account only). Normally you would perform this operation only after the markets close on the last day of trading in the options. When you Expire Options, the program looks at all the positions you have in the Existing Position fields of the nearby options in the Matrix, and automatically enters closing transactions for them into the Transaction Log. Exactly which kind of closing transaction is used depends on whether the option finished in or out of the money, and whether you were long or short. An option is judged in or out of the money based on the relationship between its strike and the Last price of the underlying in the Matrix. The Expire Options function is the easiest way to enter special closing option transactions into the T.Log because it transfers all relevant information automatically. Once the process is completed, the program clears the Existing Position fields of all the nearby options, and merges the appropriate changes into the Existing Position and Original Price fields of the underlying if the option exercised into actuals or futures. When performing an Expire Options operation, the program gives the automatically entered Xpr transactions today's date, rather than the option's 120

expiration date. When adding to an already existing position, the program computes a weighted average of original prices and uses this as the new original price. OptionVue 6 does not recognize future-dated Xpr transactions immediately. The option will not "disappear" from your Status and Matrix until the date of the transaction in your T.Log. This allows us to ensure proper operation of the BackTrader module while keeping users happy who like to see options positions disappear immediately upon doing an Expire Options operation (even if done one or more days prior to the option's expiration date). If you happen to Expire Options by mistake, all you have to do in order to undo the error is go into the Transaction Log and delete the newly added lines. This will immediately roll back the associated changes in the Matrix.

Expire All Options

The Expire Options button only works on the currently selected account. But there is also an easy way to expire the nearby options in all your accounts. From the main menu, choose File | Expire All Options and the following message appears.

If you click OK, the currently active account is searched for options with 0 or 1 day of remaining life. These options are automatically closed by exercise, assignment, or expiration, depending on whether they were long or short, and in or out of the money. Clicking the All button tells the program to search all your accounts and to automatically close any options with 0 or 1 day of remaining life. Note: It is very important that you update prices in all your asset files prior to performing any of the "Expire Options commands. What if you forget to expire options on expiration day? Naturally you can always enter the appropriate transactions manually. However, there is a built-in feature that is designed to help you in just such a situation. Each day, when you first open the program, it automatically checks whether any options positions in any of your accounts are beyond expiration. If it finds one or more, a pop-up 121

User's Guide dialog appears informing you of that fact and asking if you want to let the program try to take care of them for you. Click the OK button and the program will attempt to create the correct transactions.

Success is shown by placing a checkmark in the box to the left of the item description. The main challenge is naturally to locate a price for the underlying. The program looks in the Quotes Display, the asset file, and the price history file to find a price for the underlying with a date/time stamp that is reasonably close (if not precisely on) to the options last day of trading. If the program cannot find a price, it cannot automatically do the transaction(s) and you will need to enter them manually. In the example above, the program was able to automatically close all the positions except the SPY option.

Stock Splits and Stock Dividends

In the event of a stock split or stock dividend, If you have a position in the stock itself, you must go into the Transaction Log and add an adjustment transaction. When doing an adjustment transaction you must enter the date, code (Adj), the stock symbol, item type (i.e. 'S' for stock) and then put an adjustment factor in the price field. Your position is going to be multiplied by this adjustment factor. Stock Splits. For example, let's say you originally bought 100 shares of stock in eBay at $105.28 per share, and subsequently there was a 2-for-1 stock split. To account for this split, you need to enter an adjustment transaction for the stock with a factor of 2.00 in the price field. The software will consider that after the adjustment you have 200 shares obtained at $52.64 a share. Below is an example of what your transaction log entries would look like:

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If you have an options position on a stock that has split, you will need to manually change the original transaction to show an increased the correct number of contracts, and a reduced price. Stock splits generally result in the option changing to a different symbol, which you need to change as well. A Reminder: Dont forget to split -adjust your price chart files as well. Stock Dividends. Companies can also distribute additional shares of stock as dividend, rather than cash. These stock dividends can be handled just like stock splits. As an example, let's say that a 5% stock dividend was declared. You would need to add an adjustment transaction, with a date equal to the exdividend date and a factor of 1.05 entered into the price field.

Searching the Transaction Log

To find a particular item in the Transaction Log, click in the column you want to search by (e.g. Symbol) and click the Find button (the button with a picture of binoculars) or press Ctrl-F on your keyboard. The dialog opens and asks what item you want to find.

If the Paste from cursor button is depressed (as in the above example), the find dialog automatically picks up the contents of the current field. Find always searches by the column the cursor is in. Indicate the direction of your search as being either Forward or Backward through the T.Log. You can also choose whether the search begins from the line where you have placed the cursor or the Entire scope.

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User's Guide When Entire scope is chosen, the search begins at the first line and goes forward if you have selected the direction of Forward, or backwards from the last line if you have selected a direction of Backward. Find Next Button. To find further instances of the same item, click the Find Next button (the button with an 'N' over the binoculars) or press [F3] on your keyboard. The direction of the search continues in the same direction you originally indicated. By repeatedly clicking this button you can find every instance of the item in the T.Log. When there are no more instances youll see an Item not found message. At that point, if you click the Find Next button again and the search will reverse directions.. When you use Find Next this way, the direction of the search is determined automatically by the program. If the cursor is at the bottom of the log, the search will be upward, and subsequent Find Next operations will continue upward. If the cursor is anywhere but the bottom of the log, the search will be downward. However, if no match is found below, the search will then automatically reverse and go upward.

Deleting Transaction Information

To delete a transaction from the Transaction Log, position the cursor in the Date field of the transaction you want to delete and press the Delete key on your keyboard. This blanks out the whole row, leaving a blank row. Ignore the transaction number that is left by itself in the left-hand column. OptionVue 6 will take care of this when you leave the Transaction Log. It will then re-sort and re-number all the transactions. In any other field besides Date, the Delete key simply clears the currently selected field. To clear all transactions from your account, click the Clear All Transactions button (the one with a picture of an eraser at the end of a pencil).

Leaving the Transaction Log

Remember that no changes to the Transaction Log are permanent until you click the OK button to leave, or change to another account using the drop-down menu at the top. Switching to a different account from the drop-down menu also causes all work to be saved. You can leave without saving your changes by clicking the Cancel button. As you leave the T.Log, the program checks that all the necessary fields have been filled in for the various types of transactions. If there is anything missing, the program will position the cursor in the problem field (or in the first problem

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field if there are more than one) and ask you to complete the entry. You may then complete the entry and click OK or press [Enter] again. Once all required information is correctly filled in the program proceeds to sort all transactions by date and time, re-number them, and then save the updated T.Log. Warning: Transactions that are removed from a Transaction Log cannot be recovered once you click OK to leave or change to another account, except by means of the automatic backup files. Backing Up Your Account Records Your transaction history is likely the most vital information within the program to you. In case anything should ever happen to your Transaction Log file(s), such as your hard drive being damaged, you should regularly backup your Transaction Log files to a separate disk. Your account file(s) are located in the Records folder (normally \Program Files\OptionVue 6\records). The T.Log itself is identified by a .LOG extension. Note that every time the Transaction Log is opened for the first time on a new day, a backup of the log file is copied to <acct>.BK1 and the old <acct>.BK1 file is copied to <acct>.BK2. This way, if your Transaction Log ever gets corrupted or somehow lost, you can recover, even if you have opened the T.Log again after the corruption. You can also run the automatic backup procedure by selecting File | Back up key files from the main menu. This procedure saves all the key files in the program to a backup folder. Parceling Transactions If you ever have trades that need to be distributed into multiple accounts, you can use the Parcel Transactions function. You must first create one (master) account where you can record your full transactions. Then you can use the Parcel function to copy and distribute trades from the master account into other accounts. To parcel transactions from one account into one or more other accounts, you need to start in the account you want to parcel transaction from. Then click on the Parcel Transactions button.

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User's Guide In the Parcel Account dialog, enter a date in the "Start From Date field to indicate the date of the first transaction you want parceled. The program will parcel all transactions from this date on. You can leave this field blank if you want to parcel all the transactions in the account. below the date field as a checkbox for cash transactions. Check this if you want cash transactions parceled to other accounts. After you complete the parcel function, this date will be automatically set to the day after the last transaction so it will be ready the next time you use the parcel function. From Available Accounts, select the accounts that you want to copy transactions into by double-clicking or selecting them and clicking the Add button. To remove an account from Selected Accounts, double-click it or click on the Remove button. In the Percent column, enter the percentage of each transaction quantity to be copied from the master account to the selected account. For example, if you want the quantities divided equally between accounts A and B, enter 50% in each.

The Parcel Transactions dialog only shows 2 decimal points of precision on the distribution percentages but this does not make any difference in terms of what you can accomplish. For instance, lets say you want to parcel a transaction 7 ways. You can enter "14.285714 in the percentage field (or "100/7, which is less typing and even more precise) and the program will use that number while performing the distribution, even though it displays a rounded 14.29%. 126

The Parcel function will remember the accounts and the percentages from one time to the next so you dont have to re-enter them. Also, there is a check box that gives you the choice whether or not to parcel cash transactions such as withdrawals and deposits. Note: The Parcel function can be used to copy transactions (unadjusted) from one account to another by simply entering 100%.

Archiving Old Transactions

A feature in the Portfolio Manager allows users to "archive all your transactions in a specific account prior to a given date. This feature will move all transactions that represent positions closed out prior to a given date into a separate new transaction file. Archiving old transactions "lightens up your working T.Log and allows the software to work faster and more efficiently. To archive transactions, click on the Archive button located on the T.Log toolbar

A dialog appears asking what the date is you want to archive transactions prior to and what you want to name the new archive account.

If you are transactions for a specific year we suggest naming the new archived account with the same name followed by the year. For example, the new archived account could be named "2008 Trading Records". Once you have entered this information, click OK. You will receive a message dialog that tells you how many transactions you will be transferring and the name of the new account they will be transferred into. Once you click OK to this message, all transactions that were closed prior to the selected date will be transferred into the new account. The program gives the newly created account a copy of the performance history of the original account up to the cut-off date, while the original account retains a complete performance history. After the operation is finished, the ongoing T.Log will only contain transactions dated from the given date forward, plus any trades involved in opening positions 127

User's Guide that existed on or beyond the given date. In addition, the program automatically generates a new initial deposit transaction with an amount equal to the original deposit amount plus the net of all transactions that were archived. As a result the Account Status should display the same exact account value both before and after the archive operation. One consequence is that the account has a new base value or initial value from now on. Using the Archive feature to divide a T.Log sending old transactions into a newly created account and then using a super account to re-consolidate the two accounts for reporting purposes causes some problem in terms of giving the super account the correct current value. That is the reason the archive feature automatically enters a first transaction in the current (not the old) account as a new transaction type called "starting value or "StV. Now when the software computes the value of a super account that includes both the current and archived accounts, it will pass over any starting value records

Interaction between the Matrix and Transaction Log

The Transaction Log interacts with the Matrix in two ways: 1. The Transaction Log affects information shown in the Matrix. 2. You can transfer information from the Matrix to the Transaction Log, using the Convert Trades, Expire Options, and the Expire All Options commands discussed earlier. If you never start a Transaction Log for the current account, then OptionVue 6 leaves everything in the Matrix just the way it was when you last saved it. However, once you start a Transaction Log, every time you open a Matrix the program automatically reads the Transaction Log of the currently selected account to see what your existing positions are in this asset. This information is used to overwrite the previous contents of all the Existing Position and Original Price fields in the Matrix. If it is found that you have no existing positions in this asset, the Existing Position and Original Price fields in the Matrix will all be blanked out. OptionVue 6 will go also evaluate the Transaction Log of the currently selected account and immediately replace the appropriate information in all open Matrixes any time you view the Transaction Log and change something, when you press the letter 'P' in the Matrix to re-establish your existing positions, and any time you change the account name in any of the Portfolio Manager windows. This makes it easy to track, and quickly switch between, positions held in the same asset in different accounts. OptionVue 6 uses the Transaction Log to find what positions are currently open by pairing off all the transactions in the list that cancel each other out, until the only transactions left are the ones that have no canceling transaction. These obviously have to be your existing positions. The program then automatically 128

puts these positions into the Existing Position fields in the Matrix. At the same time, it puts the original price(s) of these positions into the Original Price fields in the Matrix. Of course, you can subsequently change the Existing Position and Original Price fields if you need to. However, the next time you open the Matrix those entries will be blanked out and then replaced by numbers derived from the T.Log.

Grouping Transactions
When showing your positions in the Account Status and the Realized and Unrealized Gain/Loss reports, OptionVue 6 can put two or more items together in what we call a "group". This is very convenient for showing spreads, straddles, covered writes, and other combinations as single units. One way to make OptionVue 6 consider two or more items as a group is to enter the opening transactions for these items into the Transaction Log with identical dates and times. (This is automatic when Converting a combinational trade from the Matrix.) If you do not want the program to consider two or more opening transactions as a group, you can make their transaction times different, or blank. Two blank Time fields in the Transaction Log are not a match. In order to form a group using identical opening dates and times, you must fill in the times. If you want to form a group, but it would be inappropriate to make the opening transaction dates and times the same, you can force the program to group them together by typing letter codes into the Recon (R) field in the Transaction Log. Choose any letter from 'a to 'z and simply type the same letter in the Recon fields of each transaction you want to include in the group. For example, if you buy shares of XYZ stock on one date, and sell XYZ call options against this on a different date, but you want the program to consider this a single covered write position, just type the letter "a in the Recon field of the stock transaction and the letter "a in the Recon field of the option transaction. To form a group, there needs to be identical Recon letters in each transaction and all legs of the group have to be based on the same underlying asset. So at the same time you are using the letter 'a to form an XYZ stock covered write, you can also use 'a to form another group that is based on a different underlying asset. This gives you a lot of flexibility choosing letter codes and you should not need many different codes. Upper and lower case letters are considered a group match. So when one leg of a group has been reconciled with the "confirm slip and has an 'A in its Recon

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User's Guide field, but another leg of the group has not been reconciled and has an 'a in its Recon field, the two legs are still considered a group. When you close out a position that has been grouped using recon codes, you must enter the same letter in the Recon field of the closing transaction(s). When you use the Convert Trades function in the Matrix, the recon codes are input automatically. With the "include realized Gains/losses feature turned on, it is important you understand the program will only find closed positions that overlapped (in time) with existing (open) positions. To get the maximum benefit from this feature, you need to have a good understanding of the standard grouping rules. For transactions that occur at different times, you will probably want to use recon codes to group all transactions you want include by putting identical letters in the Recon field of the Transaction Log Just as you can create groups by using the same letter codes, you can also prevent the consolidation of two separate positions in the same item by using different letter codes in the Recon field. An example of the need for this would be if an investor shorted a particular option as a part of one spread, and bought the same option as part of another spread. In such a case, some investors would prefer to see their positions in the shared option kept separate. You can accomplish this by coding the first spread using one letter and coding the second spread using another letter. Note: To have the program look up the next available Recon letter for the underlying asset, press Ctrl-N while the cursor is in the Recon field.

Account Status
You can view the current status of your account by clicking the Status button.

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The Account Status window is "non-modal" - meaning you can keep it open while you work with other windows. But it will not automatically change as you make changes throughout the program. To update the Status for any changes, you need to use the Refresh button. When clicked, it completely updates the window's contents to reflect any position changes, price changes, etc that has happened since the last time you opened the window (or clicked refresh). For the most part, the Account Status is output only. In fact, the only information you can change is the information in the Current Price column. If anything else in the Account Status is wrong and needs to be changed, you will need to make the change in the Transaction Log.

The Summary Section of Account Status

In the top section are three columns of numbers that contain important information about your account(s). Note that none of the fields in the Account Status summary section are affected if you have the "G/L to include previously realized G/L's" checked under Account Info.

If the word "unknown" appears in one or more fields it indicates a lack of current price information. To get rid of the unknowns, update your asset file(s) and then click the Refresh button (or close and reopen the Status). You can also enter price(s) directly in the Current Price field of the appropriate position. However, when you enter price(s) here in the Account Status itself, OptionVue 6 cannot re-compute and re-display the margin requirements. (It can re-compute and re-display everything else.) Below is a brief description for the fields in each of these three columns. Column 1

Value - The current net worth of your account. Change - The change in your account value today. This field shows the difference between todays account value and the previously recorded account value prior to today. Positions - The current value of all your existing positions. 131

User's Guide

Cash - The current value of your account, minus the current value of your open positions. % Utilized - The percentage of the current value of your account that is required by your existing positions (both their current value and the margin required). In the professional Edition, this field instead shows Edge, which is the difference between the current value of your positions and their theoretical value.

Column 2

Buy Pwr (stock) - This is the amount available in your account to buy stock (based on the securities margins you have set up for this account). This includes borrowing on margin for any existing stock positions, even if you did not purchase the existing position(s) on margin. Buy Pwr (optns) - The amount available in your account for trading both options and future contracts. Margin Requirements - The total margin required for all your existing positions. Portfolio Beta/R2 - The beta and R2 for your portfolio relative to the chosen Beta/Delta Base. Portfolio Delta - The delta of your portfolio relative to the chosen Beta/Delta Base.

These last three fields require some additional explanation. There are 10 indexes to choose from in the drop-down field of the Beta/Delta Base that might be appropriate for hedging a portfolio of stocks. You should set the Beta/Delta base to the index that most closely matches your stock holdings (e.g. has the highest R2). The drop-down list displays your portfolios weighted average R2 next to each available beta/delta base Portfolio Beta is a weighted average of your open position betas using the extrapolated value of each position (delta * underlying price) as the weighting factor. This produces a more better number than using just the portfolio delta of each position as the weighting factor. Note that Portfolio Beta and Portfolio Delta are only relevant to stocks and stock indexes and blank for other asset types. R2 is a weighted average of your portfolios R2. A high R2 is a good indication that you have selected an appropriate beta/delta base for your portfolio. Portfolio Delta is the delta of open positions in terms of the currently selected Beta/Delta Base. For example, say you're long 1000 shares of a stock with a beta of 1.10 with the QQQQ as your selected Beta/Delta Base. The program starts with the 1000 delta units of the stock, adjusts this to 1100 because of the beta, then multiplies by the price of the stock and divides by the price of the QQQQ. The result may be a portfolio beta of, say, +308 - meaning that your

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stock position is equivalent to 308 deltas of the QQQ. To hedge this using QQQ options you would need a position that gives you a delta of approximately -308. Column 3

Realized Gains/(Losses) - Realized gains/losses since account began. Unrealized Gains/(Losses) - Unrealized gains/losses of open positions. Dividends, Interest, and Fees - Combined total since the account began. Net of Deposits/(Withdrawals) - This the net flow of funds into/(out of) the account after the original investment. Portfolio Theta: The sum of the thetas of all your positions, showing the amount you should gain (or lose) per day due to the passage of time.

The top four of the fields in the third column can be thought of as a group, since these five categories always total up to the Value of your account.

Lower Section of Account Status

The lower section of the Account Status is a summary of your existing positions. These are listed Chronologically, Alphabetically, or by Expiration, whichever you choose in the top section. The program default is Chronologically (in order of the date the positions were created). OptionVue 6 can take into account slippage and/or commissions when evaluating the current value of open positions. Indicate through the check boxes in the top section whether you would like existing positions evaluated with or without slippage, and with or without commissions, in the upper right corner.

The lower section has user-customizable column assignments similar to the Quotes Display, enabling you to customize the report to your needs. To insert a new column, click in the column header you want to insert a new column in front 133

User's Guide of and press the [Insert] key. To delete a column, click on the column header you want to delete and press the [Delete] key on your keyboard. To change a column's parameter, right-click on the column heading and make your choice from the "select field" dialog that opens. The columns may be re-sized by hovering the mouse in the column header section and dragging the column boundaries. The overall size of the Account Status window may also be changed by dragging its outer boundaries. All changes are automatically saved (separately by account). Right-click on any position in the Status to bring up a context-sensitive menu that allows you to add that asset to a specific group on the Quotes Display. You also have the choice to set a new position alert from this menu (editing an existing alert requires that you open the Alerts window by clicking on the "Alerts" icon on the main toolbar). Double-clicking on any position in the Account Status window opens a Matrix, even if there is no existing asset file (the program auto-creates one from the BDB). When the Matrix is opened through Status, it will display only the position you clicked on, regardless of how many other positions you have in the same asset. The Browse feature is also active for the Account Status window. As you browse through Matrixes, the software automatically inserts the position into the Existing Position field(s) of the Matrix for you. The Status can show a value of zero for nearly worthless options, but only if the slippage model is on Hit Bid/Ask for that asset. For example, in the Matrix, if an option has an ask price of 0.10 and a bid price that is blank, the Matrix may show the "market price of the option to be 0.05 or 0.10, depending on the slippage model being used. When Hit Bid/Ask is chosen for that asset, Status will show a zero value and show the appropriate numbers in the Summary section.

Available Parameters in Status

Position Type (Posn Type). The first column of the lower section defaults to Position Type. This will display Long if the position is a simple long position, or Shrt if the position is a simple short position. If you asked the program to group two or more items on the same underlying asset (i.e. two option positions, or an option with a position in the underlying), the program will try to identify what combinational strategy it is. Identifiable strategy types include Sprd (spread), Stdl (straddle), and Cvwt (covered write). If the program cannot identify the group as one of these strategies, it will call the group a Comb (combination). A group is displayed with all the numbers combined.

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Position (Posn). The number of contracts or shares you have of the position. Description. Gives a complete description of each individual leg of the position. Symbol. The symbol of the item. Open Date. This is the date the position was originally opened. Original Price. This is usually the price you received on the day you first opened the position. However, if you have chosen to adjust the position original net and price when including previously realized gains/losses, it could be adjusted by the amount of the previous positions being included. Cost / (Proceeds). This column displays a positive number if opening this position resulted in a debit to your account. The number is negative (in parentheses) if opening this position resulted in a credit. If you have chosen to adjust the position original net and price when including previously realized gains/losses, this number could be adjusted by the amount of the previous positions being included. Current Price. Current Price is the current price of the position, obtained from the indicated Asset File for this position. Current Price comes from the Market Price of each item in the position. You can click in the Current Price field and change it. If it was blank, you can fill it in. After a change, the program re-computes the unrealized Gain/(Loss) of this position, and updates the figures in the top section of the Account Status. This can be useful for "what-ifing the effects of a price change. However, OptionVue 6 cannot re-compute the Margin Requirements in the Account Status after you change the Current Price. Current Value. The Current Value field displays a positive number if the liquidation of this position would result in a credit to your account; otherwise it will show a negative number (in parentheses). Gain/(Loss) and % Gain/(Loss). Gain/(Loss) is the Current Value minus the Cost/(Proceeds). % Gain/(Loss) is the percentage of original cost, calculated as Current Value minus the Cost/(Proceeds) divided by the Cost/(Proceeds). Expiration Date. Expiration Date is the expiration date of the position. If there is no expiration date (for example common stock or if the program cannot find an associated asset file), this column will be blank and the item will be listed last when you are sorting by expiration date.

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User's Guide Days to Expiration. The number of days between today and the expiration date of the position. This column will be blank If there is no expiration date (for example common stock or if the program cannot find an associated asset file). As Of. This column displays the date/time stamp of the current price. If the price was obtained today, this field shows the time; otherwise it shows the date of the last time the position was updated.

Margin Requirements
Margin Requirements is the amount of collateral needed to support the position. Margin requirements come into play with short options positions, as well as with long or short futures or equity positions. In order for the Account Status to compute the Margin Requirement of a position, it must be able to obtain a current price for the item, or items, involved in the position. To get this price, or prices, the program looks in the appropriate asset file. If OptionVue 6 cannot find an asset file, or if it finds the asset file and the price of the required item is not filled in, it will not be able to compute the Margin Requirements for this position. It will then display "unknown. If current price(s) are available and you still see "unknown displayed, it could be due to a lack of margin modeling information in the appropriate asset file. Open the assets Matrix, click the Model button, and then check the Margins (either Futures or Securities) for missing information. Margin Requirement can show a negative number when working with securities. When negative, it means that instead of requiring collateral of you, the brokerage is willing to loan you money. For example, if you are holding 100 shares of XYZ stock at $50 per share, most brokerages will loan you up to 70% of the current value, or $3,500 (the typical maintenance margin is 30%, meaning they will loan you 70%). This would display a negative $3,500 in the Margin Requirement field, and add $3,500 to the Buying Power fields in the top section of the Status. If you do not want to see security positions handled this way, you can open the Matrix for each asset involved and change the Maintenance Margin from 30% to 100%. The margin requirements in Status are gross maintenance requirements, and should agree with the Gross Maintenance requirements field in the Matrix. Underlying Price. The current price of the underlying asset for the position. Prev G/L. "Previously Realized Gain/Loss" shows what the program is computing when you have chosen to include previously realized gains and losses under the Account Info section. The gain/Loss and % Gain/Loss column parameters are adjusted appropriately when the mode is on. if you have also chosen to adjust the position's net and original price, those columns will also be adjusted appropriately. 136

Today's Change and Today's % Change. The program stores the previous dollar values of each open position. For positions opened today, we use the amount of the opening transaction. It then compares it the current value to calculate amount of the change. Note that the Todays Change column may not show a correct value after jumping back in time using BackTrader and then returning to the present since it will display the difference between todays value and the last assessed value of the position when you were in BackTrader. Beta. Beta is the standard beta as used in the industry to describe the usual movement of a stock or index relative to a base index in percentage terms. It is measured by correlating a stock or index with each of the available Beta/Delta Base indexes over the most recent two-year period. Current betas for all stocks and stock indexes are updated automatically through NetVue. Asset Theta. Asset Theta is a copy of the same theta that you can see in the Matrix for each asset. It represents the dollar gain or loss you should experience with the passage of one day of time. In the summary section along the top there is a field, Portfolio Theta, which represents the sum of the thetas of all positions. Asset Delta. Asset Delta is the delta of the position in terms of the asset itself the same as you would see in the Matrix. Portfolio Delta. Portfolio Delta is used in the industry to describe the usual movement of a stock or index relative to a base index in percentage terms. It is measured by correlating a stock or index with each available Beta/Delta Base index over the most recent two-year period. Portfolio Deltas for all stocks and stock indexes are updated automatically through NetVue. R2. The R-Squared for this position. A high R2 is good indication that you have selected an appropriate beta/delta base for this position.

% of Account Utilized and Account Name

% of Account Utilized. The percentage of your account that is being put to use for each of your open positions. For simple long positions, this is based on the size of each position. For example, if you have an account worth $10,000 and one of your positions is long $4,000 worth of a particular stock, the Percent of Account Utilization associated with that position is 40%. When shorting stock, options, or futures trades, Percent of Account Utilization is based on margin requirements as well as the value of the position. For example, if you have an account worth $10,000 and you are short options where the 137

User's Guide margin requirements are $6,000 and the options are worth ($1,000), the Percent of Account Utilization is 50%. Think of it this way: If you closed the option position $5,000 worth of resources, or half of your account, would be freed up. Account Name. This column is blank when you are in a regular account, but it is very helpful when you are viewing multiple positions in a super account.

Portfolio Management Tools

The Portfolio Manager has a number of important portfolio analysis tools incorporated into it. Measures of portfolio risk such as Beta, Portfolio Delta, and R2 are supplied and displayed in the Account Status summary. You can also view a graphic representation of your portfolio relative to a chosen index and automatically look for an appropriate hedge to use with the HedgeFinder feature. HedgeFinder is an important step forward in accommodating the needs of professional and individual portfolio managers. Until now, it may have been difficult to identify the kind of hedge to use and to determine the appropriate quantity of puts to buy or call spreads to sell, or both. Now both of these are easy, and the graphical presentation of HedgeFinder makes it possible to visualize the benefits as well as the cost of putting on a hedge. With a total number of 10 indexes available to choose from (the Beta/Delta Base), it should be easy to find an appropriate base that matches your portfolio. Note that one of the choices is SPY, which means there are two items in the list of beta/delta bases that represent the same thing - the S&P 500. You should see that every asset's beta and R2 will be the same relative to the SPY as to the SPX. Between the SPY and the SPX, select the one you intend to use for hedging purposes. Since the SPY is one tenth the size of the SPX, when you select the SPY you will see that your portfolio delta is roughly 10x greater - indicating you need to use approximately 10x as many SPY options as you would SPX options. Generally, small portfolio holders will want to use SPY options for more precise hedging and finer control. Larger portfolio holders might find that the SPX options are more appropriate. Also note that some of the beta/delta bases are indexes and some are ETF, but we refer to them using the simplified term "base index" for short.

Beta, Portfolio Delta, and R2

The Portfolio Delta for your entire portfolio is displayed in the top summary section of the Account Status. It represents the weight of your portfolio in terms of a base index - the Beta/Delta Base you have chosen to use as a proxy for your portfolio delta. It is computed by multiplying the value of each of your stock holdings by each stock's beta, summing the results, and dividing by the price of the base index. 138

Portfolio Delta is a key number in finding an appropriate hedge. For example, OptionVue 6 may show that your portfolio has a Portfolio Delta of 1,500 in terms of the QQQQ. That means your portfolio is equivalent to holding 1,500 shares of the QQQQ (although not precisely, of course, because of tracking error. I'll say more about tracking error shortly). Immediately you know a full hedge can be accomplished by entering into a negative 1,500 delta position in QQQQ options. Each stock's beta - representing how fast the stock tends to move (in percentage terms) relative to a base index is also available as a column to in lower section of the Account Status window. To give you an idea of how good a fit a particular index is, we also calculate a parameter called R-squared. R-squared (R2 for short) is standard in the industry. It ranges between 0.0 and 1.0, and it represents how reliable beta is. Portfolio Beta and R2 are shown together in the same field in the upper summary section of the Account Status, with the Portfolio Delta of your account shown just below. Portfolio Delta, R2, and the current Beta for the stock are also available columns for display in the lower section, allowing you to see the value for each individual position.

Lets say you are interested in the beta of a gold stock relative to the $SPX and the recently measured beta is 0.60. This would suggest that any time the $SPX goes up 1% the gold stock should go up 0.6%. But what if, in fact, the gold stock tracks very poorly with the $SPX and the recently measured beta was just a fluke? The stock's low R2 number will reveal that to you. 139

User's Guide R2 gives you an idea how well the positions in your portfolio track the base index you have chosen. You should select the base index that maximizes your overall portfolio R2. There are a total of 10 choices when you go to select an appropriate index from the Beta/Delta Base drop-down list. Next to each choice the program displays the calculated portfolio R2 in terms of that base index to help you identify the one that seems to best match your portfolio. The best fit index is the one with the highest R2. Note that for this to work, each beta/delta base that you care about needs to be added to the Quotes Display and have a current quote.

HedgeFinder
HedgeFinder is available by clicking the HedgeFinder button located in the upper-right section of the Account Status window. When first opened, HedgeFinder analyzes your existing portfolio and displays the theoretical performance line of that portfolio relative to your chosen base index.

Movements of the various assets in your portfolio are modeled against the chosen index using the beta numbers from the background database. In turn, any options in the portfolio are modeled to move according to the underlying asset. There is always going to be some degree of imprecision involved with such an approach because your portfolio may not move (and probably won't move) in lock step with the base index.

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This potential deviation is called tracking error, and it can be quantified. Using R2 and other data representing tracking error, HedgeFinder computes and displays your portfolio's tracking error relative to the selected base index using light blue shading around the performance line. The extent of this shading represents a single standard deviation (encompassing 68% of the potential fluctuation) in the value of your portfolio. Note that in order for the HedgeFinder button to be enabled - allowing you to use it the program has to have been able to compute Portfolio Delta. Possible reasons for Portfolio Delta not to be there are: 1. No price for the base index in the Quotes Display, 2. One or more individual positions for which the program has not been able to compute portfolio delta (possibly because it does not have a price).

Finding the Best Portfolio Hedge

HedgeFinder is able to recommend specific puts to buy in order to hedge your portfolio. Optionally it can also recommend selling call credit spreads, allowing you to sell calls to help offset the cost of the puts. Before using HedgeFinder to recommend a hedge, it is important that you have recently updated the Matrix of the selected Beta/Delta base so that the program is working with fresh prices. To look for an appropriate hedge click the FindHedge button.

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User's Guide Simply fill in the information that matches your risk profile: the period of time you want the hedge for, what percentage decline you are willing to accept in your portfolio value and if you want to sell call credit spreads to help pay for the puts. Then click on the Continue button. The resulting graph shows what your portfolio would like with the recommended hedge.

The description box at the top describes the recommended hedge and its cost. Clicking the "Send recom. hedge to Matrix" button causes the recommended hedge to be sent to the Matrix of the selected beta/delta base (the Matrix of the index or ETF that you have selected to represent your portfolio). If your portfolio is already hedged with a position in the options of the beta/delta base, it will recognize your existing hedge in HedgeFinder and include it in the analysis. If you want HedgeFinder to recommend a possible additional hedge to use, just go ahead and click Find Hedge and follow the steps. If you want HedgeFinder to recommend a hedge in lieu of your existing hedge, you need to first click the Remove Existing Hedge button, then click Find Hedge and follow the steps. The HedgeFinder window works like the Graphic Analysis window in the way that it accumulates cases. With two or more cases accumulated, use the yellow arrow buttons to move back and forth through the cases For instance, if you open HedgeFinder when you have a portfolio with an existing hedge, the first case displayed represents your portfolio with the existing hedge. If you then click the Remove Existing Hedge button, the window creates an additional case representing your portfolio without the hedge. 142

You now have two cases and you can jump back and forth between them, viewing one or the other. If you then ask HedgeFinder to recommend a hedge, a 3rd case will be created representing what was on the screen at the time plus the recommended new hedge. As in Graphic Analysis, the red X button can be used to throw a case away. Unlike the Graphic Analysis window, the HedgeFinder window is shown modally meaning you must finish using it and close it before you can do anything else. Also, the Close button instantly closes this window instead of minimizing it.

The Alert System in OptionVue 6

Expiration Alerts. OptionVue 6 contains an automatic system for Expiration alerts, so that you are always notified when you have an existing position that is coming close to the expiration date. During the final week of an option's life, OptionVue 5 displays a solid triangle, the letter 'x and the number of days left to expiration next to the description in the Account Status. On the last day of trading, or expiration day itself (usually the day following the last day of trading), it is indicated by a capital letter X. Below are some examples:

x6 = 6 days to expiration x3 = 3 days to expiration X1 = 1 days to expiration X0= 0 days to expiration

Price/Volume and Position Alerts. The program also contains a sophisticated alert system that can send an email, display an on-screen message, post a message in the OptionVue Message Log, and/or make a sound when userdefined conditions are met. Two different types of alerts may be set. They are: 1. Price/volume alerts on items in the Quotes Display, and 2. Position alerts (stops, objectives and delta alerts) on existing positions.

The Alerts Manager

You can open the Alerts Manager by clicking the icon that looks like a yellow bell in the upper right corner of the workspace (to the left of the OptionVue logo) or by choosing Window | Open | Alerts from the main menu.

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User's Guide The Alerts Manager displays a list of all existing alerts and their statuses. In this window you may create new alerts, change the properties of existing alerts, and cancel alerts. You may also suspend all alerts indefinitely, or re-activate them. When setting up an alert, you can indicate if the alert is to be a one-time event that is dismissed once it triggers or a perpetual alert. A perpetual alert is one that, once triggered, remains in an inactive state until a prescribed period passes (i.e. until the next day), after which the alert becomes "live again. E-mails can be sent to any standard email destination, including cell phones and pagers that can receive text messages. Having the computer make a sound is accomplished by playing a wave file of your choice. The Quotes Display has a column parameter called "Alerts that allows you to display all the active price/volume alerts. The Account Status also has a column parameter called "Alerts that allows you to display all the active position alerts.

Alerts in BackTrader Mode

Alerts work just like the records in the Transaction Log when you are in BackTrader mode. When you make a new alert, the current date and time is recorded with that alert as its "creation date/time. If you go back to a date prior to the creation date/time of some or all of your existing alerts, the program will then acts as though those alerts dont exist. You wont see them listed in the Alerts Manager and they cannot trigger. As you move forward in time so that the date and time exceed the creation date/time of those alerts (or leave BackTrader and return to live operation) the alerts will come back into view and go into effect once again.

Setting Alerts
The Alert Properties dialog opens when you select an alert and click Properties or when making a new alert. Alert Properties always opens on the Trigger tab.

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In this tab you select the type of alert you want to create and enter details about it, including whether you want the program to check for trigger conditions continuously between certain hours every trading day, or just at a certain time each trading day. To assist you in setting up multiple alerts, the program automatically assumes that you probably want some of the properties of a new alert to be like those of the previously created alert. The copied properties include 1. When to check for trigger conditions 2. The renewal conditions, and 3. The action(s) Once you choose the type of alert you want by clicking on the appropriate radio button, Price/Volume Alert or Position Alert, different properties and fields designed for that type become available.

Price/Volume Alerts
Price/Volume alerts are associated with the Quotes Display. In order for a price/volume type of alert to trigger, the symbol for the targeted item must be in the Quotes Display. The item may be any stock, index, futures contract, option, etc. anything that can be quoted in the Quotes Display. Each time prices are updated in the Quotes Display, your price/volume alerts are checked to see if the conditions have been met for any of them to trigger. You can set a new price and/or volume alert by right-clicking an item in the Quotes Display and then clicking the Set Price/Volume Alert button. You can also set a new price/volume alert in the Alerts window by clicking the New button.

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User's Guide When entering a price/volume alert, you may specify independent price thresholds for last, bid, and ask. You can also indicate whether volume is to exceed a certain number. Any fields left blank means the parameter does not matter. An implicit logical "and applies when you enter two or more parameters for a single alert. Note the "greater than/less than field changes automatically when you enter a price for an item that has a current price in the Quotes Display.

Position Alerts
Position alerts are associated with positions in the Account Status window. Each time the Account Status window is opened or refreshed, position alerts are checked to see if the conditions have been met for any of them to trigger. You can set a new position alert by right-clicking a position in the Account Status window and then clicking the "Set New Alert pop-up menu. You can also set a new position alert by opening the Alerts window and clicking the New button.

When entering a position alert, you first need a position. This is done automatically if you right-click on a position in your Status screen and choose "Set new alert" from the context-sensitive menu. Otherwise, click on the Get Position button and select one of your open positions from the list that appears.

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You may choose from seven different types of position alerts: Objective Price, Objective Gain, Objective % Gain, Stop Price, Stop Loss, Stop % Loss, or Delta. Depending on which of these you choose, you would then either enter a price, a dollar amount, a percentage amount, or a number representing a delta level, as appropriate. If you choose the Delta type of position alert, a "greater than/less than field appears. It is possible to set two or more alerts on the same item or position. In fact, this is how you would achieve a logical "or between two or more conditions. For example, lets say you want to be notified if the price of a stock falls below 50 or rises above 70. This would be accomplished by setting two separate price/volume alerts one to trigger if the stock trades below 50 and the other to trigger if the stock trades above 70. Another example would be if you want to be notified if the delta of one of your positions goes below 100 or above 100. Again, this would be accomplished by setting two separate position alerts one to trigger when delta falls below -100 and the other to trigger if delta rises above 100.

Alerts Action Tab

Here you tell the program how to notify you if the alert is triggered. The program stores a separate set of these parameters (the action details) for each type of alert. So it is possible to send a different kind message to different email address(es), and make the computer play a different sound, etc., depending on whether the alert is a price/volume alert or a position alert.

The action details are saved separately from the individual alerts. That way, even if you have no alerts set, the program still remembers your customized action details. The "Copy in" buttons next to several of the fields make it possible to instantly fill in a copy of entries previously made in these fields for other alert types. The button labeled Action Details opens the Action Details dialog. 147

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This is where you can enter email address(es), customize the message to be sent or displayed, and select a wave (.WAV) sound file to be played. The program stores a separate set of these parameters (the action details) for each type of alert. Note that the default messages contain "%s in a couple of places. If you alter the messages, be sure to keep these "%s in the message someplace because they indicate where the software is to substitute: 1. the description of the item or position, and 2. a short description of the trigger condition(s) Two required fields for email transmissions are the SMTP Host and Port. These need to be filled in with the same information you have in the setup area of your regular email program. See your network administrator if you need help with this. A few basic wave files come with the OptionVue software, but you may want to find a location in your computer where some wave files are located (files with an extension of .wav), and choose one of those. Most people have wave files located in many different folders in their computer since they come with many other programs such as games or Microsoft applications. You can use Windows Explorer to search for all *.wav files on your hard drive and find one you like. To set which sound file is used, click on the ellipsis button and navigate to the folder that contains the file you want. There are buttons in this dialog that let you test the sound file you have selected as well as immediately send a test email. Notes Tab. The final tab in the Alert Properties dialog, Notes, contains a text field that allows you to type in a personalized note for the alert.

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In the Message Log, checkboxes allow you to view only alerts, all messages except alerts, or all messages. By default, it shows all types of messages to start with, and returns to that default each time you start the program.

Portfolio Manager Reports

A variety of recordkeeping reports are available to you by clicking the Report button located on the main toolbar.

Gain/Loss: Three tabs allow you to see a Realized Gain/Loss report on closed positions, and Unrealized Gain/Loss report on open positions, or a Combined Gain/Loss report that includes both realized and unrealized positions for the currently selected account. Performance Graph: Historical performance of the selected account. Performance Analysis: Detailed and Summary performance report for the currently selected account. Performance Summary: Performance summary for all available accounts. List of Accts: A list of all accounts that can display all open positions, or all expiring options and futures, and a combination of all available accounts. Dividends: A dividends report broken down by symbol. Interest, Transfers: Report of Interest earnings & charges, plus transfers. Tax Report: Capital gains report designed to help you with your taxes.

At the top of the Reports window is a drop-down menu with your accounts. The currently selected account is the one the reports will look to. To change to a different account, simply choose it from the drop-down menu. You see tabs for all the reports we described above. Simply click on the appropriate tab to view that report. The Reports window first opens to the report 149

User's Guide setting you have chosen in the Settings tab under File | Preferences in the main menu. You can change this setting there, or right-click on the tab of the report you want to make the default report and choose "Make this the first report that opens". If the Reports window is not sized wide enough you will not see all the report tabs in view. In that case, left and right arrow buttons in the upper-right will be available for you to scroll left or right. Many reports require beginning and ending dates. When beginning and ending dates are required, reports are inclusive of the two dates. For example, if you are generating a Tax report for the calendar year 2008, the dates you should enter are 1/1/08 and 12/31/08. If you delete the Begin date the program will fill in with the first date available in the T.Log. If you delete the End date, it fills in with todays date. The program remembers dates last used independent of account. Important Note: If the "Instant reports" section is checked in your Account Information, the report will automatically be filled in. If "instant reports" is not checked, a Go button will be available. Click this button to run the reports.

Gain/Loss Report
This report contains three different reports organized by tabs: Realized, Unrealized and Combined. After clicking the Report button you will notice the first tab is labeled Gain/Loss. Click this tab and the following report is displayed.

Realized G/L Report. The Realized G/L report shows all closed positions whose closing date falls within the date range you have specified. Positions are listed in date sequence by opening date. Options positions which ended in exercise, assignment or expiration are identified with "Exer", "Asn", or "Xpr" in the closing price fields. A total for your Gain/Loss (and total commissions, if you have selected that field for display) for the specified period is shown at the bottom.

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Unrealized G/L Report. The Unrealized G/L report shows all your open positions as of today. Positions are listed in date sequence by opening date, with a Total Gain/Loss figure shown at the bottom. Combined Report. The Combined G/L report includes open and closed trades. All three Gain/Loss reports have an Asset Symbol field that allows you to restrict the reports to transactions involving a single asset. Type the symbol in the field (MSFT, for example) and only transactions involving Microsoft will be displayed.

Performance Graph
This is a graph of your account value over the specified time period. On the left, the vertical axis is scaled in dollars. On the right, the vertical axis is scaled in percentage gained/lost. The Performance Graphs vertical axis on the right side (percent change) is based on the period in view. To see the percentage gain/loss from the accounts starting value, choose a period that begins at, or prior to, the start date of the account. To see a reading for any single day, click within the graph. A wand appears and a numeric readout with the date, amount, and percentage gain/loss will be shown at the bottom. You can move the wand around within the graph by using the left and right arrow keys on your keyboard

Clicking within the graph brings up a wand that can then be moved using the arrow keys (or by dragging it with the mouse). The wand readout at the bottom for that point shows percentage returns with one decimal point of precision.

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User's Guide If you have made any deposits or withdrawals after the original deposit, you will have an available checkbox to show 2nd line. Check this and an extra, dashed line appears that represents the hypothetical value of your account as if your deposits and withdrawals never took place. There are also two optional lines that you can display: One representing cumulative total (realized and unrealized) profit/loss and the other representing just realized profits/losses. These can be displayed alongside the first two selections, but then the percentage gain/loss axis does not apply to these two lines. They are probably most useful compared only to each other, without including the first two lines, as below.

To generate the Performance Graph, the program relies on the file "<account name>.HST in the records folder, where <account name> is the name of the currently selected account. This file contains a history of daily net account values that is updated each time you view the Account Status. It is a text file and can be edited (with a text editor such as Notepad) if you need to fill in and/or correct the information there.

Performance Analysis Report

The Performance Analysis report is split into two sections. A summary of your account is contained in the yellow box in the upper-right corner of the form. The main body of your report, with a white background, contains a variety of useful statistics about your trading record; for instance, the number of winning and losing trades, your average gain per trade, your average loss, and much more.

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All information is for the period specified. The example shown above is for the three year period between December 31, 2005 and January 4, 2009. Another useful feature of the Performance Analysis is the Asset Symbol field. When left blank, all assets in the specified time period will be considered. Type in a symbol, MSFT (for Microsoft) for example, and you have a complete analysis of everything you have done on that one asset in this particular account.

Performance Summary Report

This report shows how your accounts have performed as of today's date. You have the choice of looking at just the currently selected account, or all your accounts, by clicking on the appropriate radio button. The report shows the original investment, the flow of funds into and out of the account, the account's current value, the percentage gained/lost, and the annualized percentage gained/lost for each account.

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User's Guide Totals at the bottom combine the information from all the accounts. If you are using password protection, only those accounts accessible under the current password will be included in the Performance Summary report. It should be noted the formula for Percent Gain/Loss in this report is as follows: [(Current Value + Funds Withdrawn) / (Orig.Investment + Funds Added)] - 1

List of Accounts Report

The List of Accounts report shows your open positions or expiring options, depending on the radio button you have selected. You can see this information for the current account, or all your accounts. When showing multiple accounts, a section at the bottom displays the combined positions of all listed accounts.

You can choose to look at one specific asset, or leave the Asset Symbol field blank to see all assets. The column Cash Balance shows pure idle cash, rather than option buying power.

Dividends Report
This report shows all dividends received in the specified date range. Dividends are grouped by stock symbol, and are listed in date sequence within each group.

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Interest and Transfers Report

This report summarizes all of the interest transactions, deposits, withdrawals, service charges, management fees, and rebates that occurred in the currently active account, within the specified date range.

Tax Report
The (Capital Gains) Tax report, like the Realized G/L report, shows all closed positions whose closing date falls in the specified date range. But the format of this report is a little different. This report was designed to be a supporting document for federal tax returns and follows IRS guidelines for Schedule D.

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User's Guide

Transactions are listed in date sequence by closing date and the amounts are rounded to the nearest dollar. The Tax Report correctly reflects the rules regarding securities options that have been exercised or assigned, merging the options debit or credit in with the stocks opening or closing transaction, whichever is appropriate. It also correctly classifies a short option position closed by repurchase or expiration as short term regardless of the position duration.

Long Term Holding Period

The long term holding period is the number of months or years that a security must be held before it is considered a long term holding. Select View | System Models from the main menu, and set the Capital Gains Long Term Holding Period. If you leave the long term holding period at 1 year (or change it to anything but none), the Capital Gains Tax report comes in two major sections: first the short term gains/losses, then the long term gains/losses. If your countrys tax system does not differentiate between long and short term holding periods, set it to none. This will cause the Capital Gains Tax Report to have just one section, and not differentiate between long and short term gains/losses.

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Tax Lot Accounting

Tax lot accounting is supported through the use of Recon codes. For example, if you buy 100 shares of XYZ at 25, and later buy 100 more shares at 35, then later sell 100 shares, you can now specify which of the 100 lots you have sold. This would be indicated to the program by giving the sale transaction and the desired purchase transaction identical Recon codes. Lets say you indicate the second lot by giving both the sale and the second purchase a Recon code of 'a. The programs Tax report will then show the sale of 100 shares acquired at 35. If you do not use recon codes, lot matching is not done. This means that if you had two stock purchases, and you later sold them on separate occasions, the program would treat them as a single transaction, starting at the earliest date. If one happened to be long term, and the other short term, the program would treat them both as long term, unless you use recon codes to tell it otherwise.

Special Tax Rules

OptionVue 6 does not account for many specialized tax laws such as straddles and the so-called short sale and wash sale rules of the U.S. federal tax code. For this reason, as well as others (i.e. the so-called "straddle rules), the OptionVue 6 Capital Gains Tax Report is not an official report. It is your responsibility to check the report for accuracy, get advice if necessary on the correct interpretation of tax laws, and then file a bonafide return.

Special Treatment of Futures

When you trade futures, the full cost of the underlying asset does not change hands until the asset is actually received or delivered, if ever. Instead, collateral is maintained to support the position. As the value of the future changes, the gain/loss is credited/debited to the account on a daily basis. When entering a futures trade into the Transaction Log, the Net field will show no amount for the trade, other than commissions. In the Account Status the Cost/(Proceeds) field and the Current Value field will also show no values other than commissions. However, the cash balance of the portfolio will be affected by the amount gained or lost so far on the futures contract(s). U.S. Federal Tax rules also stipulate that 40 percent of the capital gain/loss from qualifying futures positions, as well as broad-based U.S. stock index options, currency options, and others, be reported as a short-term gain/loss, while 60 percent is reported as a long-term gain/loss (for more information, refer to IRS rules). OptionVue 6 does not help you with this, although your futures clearing firm will send you a report. The figures on this report should match the Gain/Loss report if your transactions are recorded properly. 157

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Mark-to-Market
U.S. Federal Tax rules require that for futures positions, as well as for positions in many of the broad-based U.S. stock index options, currency options, etc., which are open at the end of the year, the gain or loss accrued to the account on December 31st must be reported to the IRS as a realized capital gain or loss. This is referred to as the mark-to-market treatment. To accomplish this in OptionVue 6, you need to enter a closing transaction using the items value as of December 31st. You then need to enter a new transaction to reopen the position using the same price as of January 1st. The last step is to zero out the commissions on both transactions. Now you can print the Capital Gains Tax Report. The IRS may consider an option contract to be a "marked-to-market contract. If so, special rules need to be followed when reporting capital gains. Otherwise, capital gains are reported for the year in which the option position was closed.

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The Trade Finder

Find Optimal Trades using the Trade Finder
The Trade Finder is one of the most powerful features in OptionVue 6. The program can search through one or more assets for potentially profitable trades and generate a list of specific buy/sell recommendations based on your targets, goals, and risk preference. Just enter your price projection for the underlying asset, the strategies you would consider using, and the amount of capital you want to provide. The program runs thousands of simulations, and comes back with the top 50 recommended trades Include your existing positions in an analysis, and Trade Finder will recommended adjusting trades to change your existing position to increase your return on investment or to achieve delta neutral positions. To open Trade Finder, click on the TradeFinder button in the Main Tool Bar and the Trade Finder window will appear.

Using the Trade Finder is a simple matter of telling OptionVue 6 what you are looking for. Select each tab, filling in the necessary information for what asset(s) you want to analyze, your price and date targets, the strategies you wish to look at, your goals (including the amount of capital you want to provide), and any filters you want to use to further refine your search. Click the Go button and OptionVue 6 will quickly run through thousands of simulations, generating a list of its top 50 buy/sell recommendations based on your preferences. Lets go through each of the Trade Finder sections in detail. 159

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The Assets Tab

Under the Assets tab, choose the assets you want to include. The Assets to Include box works the same as the Update box described previously in the section on Batch File Updating. Choose a single asset, use your asset lists, or simply put in everything you have set up in your Quotes Display.

Only assets that you have set up on the Quotes Display are available to use in the Trade Finder. Dont forget to update the assets you want to look at before you run Trade Finder, since you will naturally get the best recommendations using current data.

Targets Tab
Click the Targets tab to open a dialog box where you can enter your target types.

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Under the Targets tab, you can review and change your targets. Trade Finder needs a target for each asset you are including. If you are looking at multiple assets, clicking on an asset in the symbol list will display its target. To step through assets, click the up or down buttons on the left. Any targets you set in your Price Charts will automatically be imported into the Trade Finder. To set all Targets at once for a group of assets, click on the ellipsis button. The Set all targets as... dialog box will open. In the price field(s) you need to enter a percentage by which each underlying is expected to change from its current price. Choose your targets date(s) and click OK. You will then see the program update the targets of all the assets listed. In addition to price targets, you may enter a hypothetical implied volatility shift to be taken into account during the analysis. You may enter negative numbers or positive numbers. Keep in mind that OptionVue 6 already accounts for a shift in volatility due to price changes with the CEV factor, so normally this box is left unchanged. The program adds the Implied Volatility Change input here to the volatility numbers it would ordinarily use in evaluating its positions. When left at zero, the program uses unaffected volatilities. Each asset has its own Implied Volatility Change field.

Expressing your Targets

Since targets are user-supplied forecasts, it is important to have a thorough understanding of target settings to get the maximum benefit from the Trade Finder. Targets appear in three areas of OptionVue 6: In the Graphic Analysis, the Price Charts, and the Trade Finder. A Target can be expressed in one of five forms: 1. 2. 3. 4. 5. A single target price with a single date. A single target price with a date range. A price range with a single date. A price range with a date range. A bell curve centered on a specified target price projected to a single date.

The first two types are simple. You are projecting that the underlying will go to one specific price at either one specific date or sometime in between two dates. The third and fourth types involve a price range and require a low and a high price. Here you are saying that the price will be somewhere within this range by the date(s) indicated. The program assumes a uniform probability of the underlying being within that range.

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User's Guide The final type - bell curve - is actually a lognormal distribution. Studies have shown that stock price behavior is very closely approximated by the lognormal probability distribution. When you use the bell curve type of target you are saying that the underlying will behave pretty much the same way it has historically. You can "bias your bell curve projection by centering it around a higher or lower price than the underlyings current price if you are bullish or bearish. If you are neutral you can center the bell curve around todays price. A bell curve centered around todays price and current volatility is sort of a "know nothing forecast. In the absence of reliable predictive information for the underlying, a neutral prediction may seem safe. However, most options are already fairly valued for the current price and volatility. So choosing a bell curve target centered on the current price is really just looking for mis-priced options. Most trades will show nearly zero expected returns, although it is always possible the mis-pricing is due to a planned, or expected, corporate action or event or data that is not being taken into account (such as a change in dividend policy). So be very careful when looking for mis-priced options in this way and be sure to thoroughly research the asset before making any trade.

Price Targets
If you choose Price as your target type, a single field appears to enter the target price. If you click the "paste in button next to this field (or type the letter 'T on your keyboard) the program will copy the current price of the underlying into the field to use as a starting point. If you choose the target type Price Range, two fields will appear for you to enter the low and the high prices for the price range. Again, you can click the "paste in buttons next to these fields (or press "T) to have the program copy in the current price of the underlying as starting points. If you choose the target type Bell Curve, two fields will appear. The first is for you to enter the center price of the bell curve, the other is to enter the prospective volatility of the underlying asset. This allows you to specify the volatility that you expect the underlying to exhibit separately from the volatility that might be exhibited in option premium levels. You will probably want to refer to the current Statistical Volatility on the Model Volatility screen, and/or the Historical Volatility chart, to find a reasonable number to plug into this Volatility field. You can also click the "paste-in button (or press "T) to have the program copy Statistical Volatility from the Model Volatility screen (only available if 5 days of high/low prices have been accumulated).

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Date Fields
Remember, the date field(s) can accept many different types of input. You can simply type a date in any of the acceptable formats. The date field will also accept a "T+n kind of entry, representing "Today plus n days. "X entries, representing the expiration dates of the options in the Matrix, can also be entered. For example, if you type X2 and hit Enter, the program will enter the expiration date of the second month options. For another example, to enter the date 5 days prior to the expiration of the third month options, you would type "X3-5.

Contract Specifier
When working with futures, a field will appear at the bottom of this section where you need to indicate which futures contract month you are projecting. Your choice here can not be a contract expiring prior to your target date(s).

Strategies Tab
Under the Strategies tab you indicate which strategies you want the Trade Finder to consider when making its recommendations.

Click Select All if you want to consider all of the strategies. To uncheck them all, click Deselect All. To choose only strategies that do not involve writing naked options, click on Select All Covered. Click on Select All Naked if you only want to look at uncovered strategies. If you want the Trade Finder to consider LEAPs when looking for the best trades, simply click in the Include LEAPs checkbox. 163

User's Guide You may choose to include only Calls, only Puts, or to use Both in determining the recommended trades by clicking the appropriate radio button. Remember that some strategies (such as a straddle) require using both calls and puts. Finally, there is the Selection Type switch. This is normally on Explore Main Strategies, where the program considers all of the main strategies. Roll Covered Calls is a special function just for covered writers. You must have an existing covered write position in the Matrix to use the Roll Covered Calls feature. Trade Finder will then consider buying your short call option and selling other call options to see if "rolling into another call option would be more profitable. Note: Even when choosing Roll Covered Calls on the last trading day before expiration, the Trade Finder results will show buying back the existing short call and selling another call in a different month, whether or not you really need to buy back your existing short call.

Goals Tab
Under the Goals tab, you must enter the amount of capital youre willing to provide for this trade. Trade Finder will use this amount to figure the quantity of each trade that can be afforded.

Comparison Basis tells the program whether you want to see the results quantified in terms of dollars, yield, or annualized yield. Simply click on the down arrow and make your choice from the drop-down Menu. Below these drop-down menus are some specialized settings.

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The Include existing positions in analysis checkbox. Leave this box unchecked if you want the program to recommend fresh new trades on their own merit. When you check this box, the program will use any existing positions you may have in the indicated asset(s) as a starting point, and then recommend potentially profitable changes to those positions. When you tell the program to include an existing position in the underlying, the program will also consider reversing, if necessary, your position in the underlying as it seeks to make the best use of the capital you made available for this trade. Note: When you use this mode, "Capital Provided has to cover both the existing position and any additional trade(s). If you choose to include existing positions in the analysis, you may further indicate that you want the program to Scale recommended trades to help an existing position become delta neutral at the current price of the underlying. Scaling refers to quantity. Lets use an example to show how this works. Say that you have an existing position with a delta of -80 (negative 80) at this time. Trade Finder is considering a trade that would improve the profitability of your existing position, and this trade happens to be delta positive. Each unit quantity of this trade is a delta +20. Trade Finder has computed that, based on the capital provided, you could afford 12 units of the new trade. However, it will recommend only 4 units of the new trade, because this would make your net position delta neutral. The other 8 units are left out, even though they might have made your position even more profitable (i.e. higher expected return). If only three units of the trade were affordable based on the capital provided, the program would recommend the 3-unit trade (the 3 units dont get you all the way delta neutral, but they help). If the trade it would otherwise recommend has a negative delta - the same as your existing position - Trade Finder will not recommend it, even if it would have been profitable. Straddles and Strangles. At the bottom of the Goals area, Trade Finder gives you a choice with respect to straddles and strangles. You can either restrict the program to consider equal quantities of calls and puts (a 1 to 1 ratio), or you can let it consider a call/put ratio that will achieve delta neutral positions. Trade Finder will ignore this choice if you have not chosen the straddle or strangle strategies in the Strategies tab.

Filters Tab
The final tab is Filters. Here you can specify various option attributes to exclude trades that you would not consider anyway.

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The program default is a 1 in the Open interest is greater than or equal to field to make sure that at least one other person has a position in that same option. The check in the "Avoid selling deep ITM American style options box is designed to protect you from making the mistake of selling deep in-the-money options and being assigned right away.

Running Trade Finder

Once you have all the information filled out in each tab, click the Go button. In a moment youll see some potential trades. These are specific recommendations, with quantities chosen according to how many could be afforded with the capital provided in the Goals tab. While running you can see which asset and strategy the program is working on. If you need to interrupt it, click the Stop button. OptionVue 6 finds the top 50 best performing trades and ranks them according to the Ranking basis you have chosen. The default is to rank the top 50 trades by expected return. To see the top 50 choices ranked by one of the other categories, just click the appropriate radio button.

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Ranking Basis
Expected Return (E.R.) is the average outcome of the prospective trade within your target range. The Worst Case Return (W.C.R) and Best Case Return (B.C.R.) are the worst and best outcomes of the trade within your target range. Probability of Profit (P.P.) is the only category that is independent of your target. P.P. indicates the chances for making a gain on the trade based on a bell curve projection centered on todays price. There are also two risk/reward ratios available for ranking the results: B.C.R./W.C.R. and E.R./W.C.R. When computing these ratios we dont just divide by WCR. First, we need to negate WCR to make it a positive number since WCR is inherently negative going in. Second, we add a constant base number to this now-positive WCR in forming the ratios divisor. To explain why, lets generate an example. Lets say you have one recommendation where the BCR is $6,000 and the WCR is -$10, and another recommendation where the BCR is $6,000 and the WCR is -$100. Do we want 167

User's Guide to say that the first trade is 10x better than the second? Of course not. The first trade is better but its not 10x better. Using a simple formula where BCR is divided by WCR would say just that. To make it so the first trade is considered "somewhat better than the second but not 10x better, we add a base number to WCR before computing the ratio. To come up with an appropriate base number, we determined that using the Amount Provided divided by 10 produces reasonable results. That way the base number is scaled to the size of the trades being recommended. So if you entered $5,000 as the Amount Provided, the program would use one tenth that amount, or $500, as the constant base number. Then in computing each of the new ratios, the program would then use WCR plus $500 as the denominator.

Results
From the results, you can browse through the Matrixes, Price Charts, and Volty Charts. Naturally, if the next recommendation is on the same asset, there will be no change. Transaction costs (slippage, commissions, margin requirements) are taken into account when generating these results, just as in the Graphic Analysis. To see a graphic analysis of the resulting trades, highlight the trade(s) you want to look at by clicking on it (hold down the Ctrl key to highlight more than one trade at a time) and then click on the Analyze button. If you select more than one trade, all trades involving the same underlying asset go in as separate cases to a single Graphic Analysis window. When the trades selected involve different assets, multiple Graphic Analysis windows will open. If you receive continuous price updates, it might make sense to have Trade Finder repeat continuously. This way it will be constantly re-evaluating and reranking possible trades as your data changes. This can happen in the background while you work with other program features at the same time.

Send Trade to Matrix

You can send one of the trades directly from the Trade Finder into the Matrix. Putting a trade in the Matrix helps you visualize it. It can also help constructing a custom trade, based on the recommended trade as a starting point. Besides sending trades from Trade Finder to the Matrix, you can also get recommended trades while you stay in the Matrix. After running Trade Finder, the Matrix will have a section in the lower right with a small number field, plus buttons 'C and 'A. 'C is for capture and 'A is for add. Press 'C and the program will replace any existing trade with the new one being captured. Press 'A and the program will add the recommended trade to any trades already in the Matrix.

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Trades from Trade Finder into a Matrix always transfer into the Trade fields of the Matrix. The existing position fields are left undisturbed. Click the Clear button to clear away all recommendations. Note: Clicking the Go button will always automatically clear all recommendations before doing anything else.

Interpreting the Trade Finder Results

Lets take the time to think about some important considerations that lie behind the recommendations and results that the Trade Finder produces. Single Price and Single Date When your target is a single price and a single date, W.C.R. (worst case returns) and B.C.R. (best case returns) will be equal to E.R. That is because there can only be one outcome when your target is a single price and a single date. Price Range or Date Range When your target contains a price range or date range, W.C.R., B.C.R., and E.R. represents the worst, best and expected outcome of the trade within the price and/or date range that you have set for your target. They do not represent the best or worst outcome possible. Bell Curve When your target is a bell curve, W.C.R. represents the worst outcome of the trade within two standard deviations of underlying price movement in either direction. B.C.R. likewise represents the best outcome of the trade within two standard deviations of underlying price movement. Note: These also may not be the absolute worst and best possible outcomes you can experience with the trade. Probability of Profit (P.P.) P.P. indicates the chances of making a gain on the trade, based on a bell curve projection centered on the current underlying price and volatility of the asset. This is completely independent of your target. Because P.P. is independent of your target, it can give you a good indication of how realistic your target is. However, it may not always be the most useful way to rank your trades and should be used in conjunction with the other information

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User's Guide you have. For example, a trade that has a 98% P.P. but requires you to risk $10,000 for an expected return of $20 is probably not worth considering. Is Trade Finder Recommending Lots of Low-priced Options? If you have a lot of way out-of-the-money options in your Matrix, the top trades may be dominated by trades that recommend selling hundreds of these options. If you would not really consider trading them, you probably have your AutoStrike settings set to allow too many options (all large extents, for example). If you really feel you might trade these someday, and simply must have them in your Matrix, you can always use the Filters tab to exclude buying and selling options below a certain price. Finally, TradeFinder will not recommend the short sale of any option where the current bid price is blank and the slippage model is set to "Hit Bid/Ask. Using the other slippage models, the program will estimate the likely sale price you would get if you did place the order, even if there is not currently a bid price being quoted. So, for example, the program might recommend selling an option short at a price of 0.05 that had a blank bid and an asked price of 0.10. Under the Hit Bid/Ask slippage model, it will not recommend the sale of this option.

Target Price Analysis

Target Price Analysis is when the program applies your target to a prospective investment or trade and calculates the outcome. When the target is a single price and a single date, there can be just one outcome, so the result is just a single number: expected return. With all other kinds of targets, there can be multiple outcomes, and the results are quantified in terms of: expected return: (an average of the outcomes) standard deviation: (the variance of outcomes) worst case return: (the worse outcome) best case return: (the best outcome). In Graphic Analysis there is only enough room to show you two of these: expected return and standard deviation. Trade Finder displays expected return with the more useful worst case return and best case return instead of standard deviation. Expected Return. Expected return is the sum of all possible investment outcomes after weighting each outcome by its probability of occurring. For example, consider a $1,000 investment that has a 50% chance of losing $250, a 25% chance of gaining $200, and a 25% chance of gaining $800. Expected 170

return may be computed by multiplying each outcome by its probability of occurring, and summing the results: -$250 x .5 = -125 $200 x .25 = 50 $800 x .25 = 200 Total: 125 The result is a positive expected return of $125, or 12.5% on the $1,000 investment. This does not mean that you have a good chance of making $125 on any single instance of this investment. In fact, the chances of making $125 on a single instance of this investment are nil. What it does mean is that if you repeatedly made this investment, the long term results would be an average gain of $125 per instance. Standard Deviation. One standard deviation is the plus-and-minus amount that encompasses 68% of all possible outcomes. It is computed by taking the square root of the sum of the squares of the differences between each outcome and the expected return. For the previous example, this would be: SQRT[0.5 x (-250-125)2 + 0.25 x (200-125)2 + 0.25 x (800-125)2] = 431 What this means is that the range of outcomes from 125 +/- 431 (-306 through +556) encompasses 68% of all possible outcomes. Actually, standard deviation principles were meant to be applied only to bell curve shaped phenomenon. In this situation, as well as in many option investment situations, it is a very rough application of the principles because outcomes are nowhere near being a bell curve shaped distribution. Nevertheless, the standard deviation part of the target price analysis is a fairly decent measure of risk. The higher the standard deviation, the greater your uncertainty of the outcome, i.e. the greater the risk. You will naturally want to select those investments promising the greatest expected return at the lowest standard deviation.

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The Survey Function

OptionVue 6s Database Survey can be an excellent source of ideas for new assets to trade. The Survey function allows you to access the latest daily data on our NetVue servers to look for assets possessing exceptional liquidity and volatility characteristics. The criteria available for selection are:

Highest IV (Implied Volatility) Lowest IV Highest SV (Statistical Volatility) Lowest SV Highest IV/SV ratio Lowest IV/SV ratio Highest current IV percentile Lowest current IV percentile Highest current SV percentile Lowest current SV percentile Greatest dollar volume of options traded

You can specify exactly what you are looking for and the number of candidates that result. You can search the whole database, only certain asset types (such as stocks or futures), or a subsection of assets that you specify. You can also search by one criteria and sort the results by a different one. Once you have your list of qualified candidates, you can browse through their Matrixes, Price Charts, and Volatility Charts and when you find a promising asset, add it to your Quotes Display by double-clicking on it. Youll soon find the Survey is a valuable addition to your trading toolbox.

Setting the Survey Criteria

Click the Survey button on the Main Toolbar to bring up the Survey dialog box.

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How Many Assets to Pick? In this field you enter how many assets you want listed. For example, if you enter 100, the program will list the top 100 qualified candidates. If the number entered is larger than the number of qualified assets in the database, all qualified assets in the database will be listed. Pick/Sort them based on. Choose the criteria you want to use for picking and sorting assets from the drop-down menus. You can have OptionVue 6 pick the top candidates according to one criterion, and sort them according to another. For example, you could pick the top assets according to the Highest Current IV and then rank them based on a ratio of implied vs. statistical volatility. Survey / Assets of Type. This section follows the same format used throughout the program for choosing the assets you want to consider. Assets of type allows you to choose specific asset types from the drop-down menu. Choose All if you want the survey to consider all asset types. 173

User's Guide Beneath that are two checkboxes that allow you to look for US or Australian assets. You can check any individual country, or both if you like. You may also choose to instead survey an asset list you have set up, or use the Selected Assets to choose your candidates from those you have set up on the Quotes Display. Minimum DVO. An entry in this field tells the program to list assets whose DVO (dollar volume of options traded) is greater than or equal to this number. DVO is a daily figure, expressed in thousands. A DVO of 250 means that for that asset, $250,000 worth of options trade daily, on average. Minimum History. This field allows you to indicate a minimum historical time period you want considered. The program will exclude assets having less than the indicated amount of history. This field is expressed in years, 0.2 to 6.0 allowed, with 1.0 being the program default. Percentile uses up to. This field gives you the ability to indicate a historical time period upon which to base the historical averages and percentiles. This field is also expressed in years, 0.2 to 6.0 allowed, with 6.0 the default. Survey NetVue Database or Local Files? Choose whether to survey the NetVue database or your own local historical files. This field is designed primarily for overseas customers that are tracking and updating assets not in the database.

Running the Survey

With the fields filled in, you can click the Go button to run the Survey. Once you hit the Go button, OptionVue 6 extends the form and lists the qualifying assets, ranked in order of the sort value you chose. Each line will list the Symbol and Name of the asset, followed by the DVO, Statistical Volty and Implied Volty for each asset. Under the Statistical Volty and Implied Volty headings are two columns: Current and Percentile. Current is the current volatility reading. Percentile is a number from 1 to 99 indicating the relative standing of the current reading in a historical context. A Percentile figure of 90, for example, means the current reading is higher than 90% of the historical readings over the chosen percentile history.

Browsing From Survey Results

After completing a Survey, you can browse through the Matrixes, Price Charts, or Volty Charts of each asset. To start with the top asset, just click the appropriate button. Then use the Prev and Next buttons of the Browse feature, or the Page

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Up and Page Down keys on your keyboard to step through the survey reports assets. To start with one particular asset, highlight it first and click the button for the asset-specific function you want. To browse only certain assets from the survey report, highlight them by holding down the Ctrl key as you select them, and then click the Matrix, Price Chart, or Volty Chart button.

Transferring Selected Assets into the Quotes Display

To transfer one or more selected assets into the Quotes Display, first select the asset(s) by clicking in the list and using standard Windows methods (e.g. use the [Shift] key to select a range or the [Ctrl] to add/remove individual line items). Once you have the desired asset(s) selected, right-click in the list. Youll see a list of existing Quotes Display group headings, plus one extra one at the bottom called Survey Results. Click on the group to which you would like to have these assets added. If you click Survey Results and a group by this name does not already exist in the Quotes Display, the program will automatically create it.

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The Probability Calculator

Ever wanted to know what the mathematical probability of success is for a given trade? OptionVue 6's Probability Calculator can help you in ascertaining the mathematical odds of certain prices being achieved during a given time frame. The Probability Calculator is a good place to check how realistic your expectations are with respect to given price moves. Given an underlying price, future volatility, and time period, the program will instantly calculate the first, second, and third deviation price movement to the downside and the upside. Add a target price and the program will tell you the probability of the asset being above or below that price on your target date. Add a price range, and the program will tell you the probability of being below the lowest price target, above the highest price target, as well as the chance of finishing between those two target prices by your target date. Of special interest to option traders, the program will also tell you the probability of the underlying ever touching your target price(s) during the time period you are looking at.

Using the Probability Calculator

Click the Prob (for probability) button in the Main Toolbar to bring up a Probability Calculator.

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The top four fields must be filled in for the program to calculate the first, second, and third deviation price moves. Once filled in, the program calculates and displays the answers instantly. If a Matrix is open, the Probability Calculator automatically looks to that Matrix and fills in the first two fields: Current Price and Future Statistical Volatility. Current Price. The program uses the Last price of the underlying asset. To change this price, simply click in the field and type in the price you wish to use. Future Statistical Volatility. The program will fill in the current SV (from the Model Volatility screen). This figure is only available if 5 days of high/low prices have been accumulated. Otherwise the program will display current Grand Average Implied Volatility. You may change this to reflect your own opinion of future SV. Days Ahead / Future Date. These fields are mutually dependent. When you enter one, the other one will update automatically. Once these fields are complete, the program calculates the first, second and third standard deviation price moves, both downside and upside. These numbers are shown in the middle of the screen.

Interpreting the Probability Calculator Results

Standard Deviation, from statistics, is a tool for measuring how widely a set of numbers deviate from their mean. It is computed by taking the square root of the sum of the squares of the differences from the mean. In the lower half of the probability calculator screen, you can enter one or two prices and get the program to show you the probability of finishing below, between, or above these prices as well as the probability of ever touching them. The program automatically imports the current price and future statistical volatility if a Matrix is open. You then need only choose the days ahead you want to look and a target price or price range. First the program will calculate the standard deviations. To help explain the numbers, the first standard deviation represents a 68% chance of being between the one standard deviation numbers (represented by the -1 and +1 boxes). The chances of being between the two second standard deviation prices is 95%, and the chance of being between the two third standard deviation numbers is 99%. In the lower part of the screen, the program tells us what the chances are of finishing below the lowest target price, above the highest target price, and the probability of finishing between them by the date that was input. The program also lets us know the chance of ever touching the lowest target price and of ever touching the highest target price anytime between today and our chosen date. 177

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Proper care and Feeding

OptionVue 6s Need for Data
Every day that you use OptionVue 6, it needs current prices. Without current prices, there is very little the program can do. There is also important foundational information needed by the program that must be kept up-to-date for proper operation. This chapter covers how to get data and keep the program upto-date to ensure you are getting the most accurate analysis possible. Access to OptionVue Systems own real-time continuous data service, QuoteVue, is built right into the program. QuoteVue is a fast data feed available via the Internet for an additional monthly fee. The Continuous Data Interface also allows you to pick up current prices from Bull Signal (for Australian data) and eSignal. Prices can also be imported from other programs via an ASCII file. Barring these methods, everything in the program can be updated manually. Even prices can be typed in by hand. This approach is tedious and not recommended since you would have to open each Matrix, one at a time, and type new prices directly into the 'Last field of every option.

Updating with NetVue

OptionVue 6 maintains a constant connection with NetVue, OptionVue System's name for a host of data services. While online, the program can update the Quotes Display, asset files, historical price and volatility data, download fresh background data, access past data through BackTrader and run OpScan formulas. QuoteVue, OpScan, and BackTrader are subscription services that require an authorized NetVue user ID and password. Your NetVue User ID and Password is stored under NetVue | Comm Settings in the main menu. They can also be accessed using the Comm Settings button in the Update Asset Files + dialog box. With a subscription to QuoteVue, you can do a batch update of all your files. From the main menu, select NetVue | Update Asset Files +. In this dialog you can update a single asset file, any asset lists you have created, a group of assets, or all your asset files. You can also choose to have other NetVue services update at the same time (that is what the '+ is for). The first Update box is for your asset files and updates all the Matrixes that you choose. Updating all your asset files after the market close is a good idea because it makes sure that every asset file has been updated to ensure they have the most accurate volatility information.

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Update price chart files. Check the "Update price chart files" box if you want your historical price files updated. Then select which file(s) you want to update. This can also be done individually by choosing NetVue | Update price chart files from the main menu. Updating the Price Charts will download all past data needed to make sure the chart is up-to-date for the last complete trading day. Historical data updates for the current trading day are available after 7:30 PM (CST) each evening. Historical price data is available free to all OptionVue 6 owners, whether or not you subscribe to QuoteVue for your current quotes. Note: DataVue has "continuous contract price data for futures, not individual contract data. Therefore you cannot update individual contract files (e.g. September Soybeans). Run OpScan(s). Check the "Run OpScan(s)" box if you want to run one or more OpScans. This will either run the formula(s) that are already chosen, or you can click on the Formulas button and choose which ones to run. This operation can also be done separately by selecting NetVue | Run OpScan(s) from the main menu, or using the OpScan button on the main toolbar. OpScan is a universal search tool available for an additional monthly fee.

Using a Continuous Data Service

For current prices serious need real-time continuous quotes. While continuous quotes are coming into OptionVue 6, you will see a tiny "moon slowly encircling the orb of OptionVue's logo in the upper right corner. 179

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To connect OptionVue 6 with a continuous data service involves the use of a separate program called a "data server or "data manager. Rather than interfacing directly with the data source, OptionVue 6 interfaces with the data server, and the data server interfaces with the data source. OptionVue 6 is programmed to work with three data servers (you must choose one to use a continuous data service): 1. QuoteVue (OptionVue Systems' own data feed) 2. Signal Data Manager (needed to work with eSignal). 4. BullSignal (for Australian data) To make your choice, click on the OptionVue System's Logo in the upper right hand corner, or choose View | Quotes Reception from the main menu. Click on the down arrow and you will see a drop-down menu that offers you the choice of continuous data services. The choice "None" is only for those that will use ASCII import or type quotes in by hand.

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If you use a continuous quote service such as QuoteVue, fresh quotes will fill in automatically every time you open a Matrix. Best bid/offer is available for options when using OptionVue 6 with the supported real-time services. Most stock options are "multiply-listed. That is, they trade on two or more of the five options exchanges the CBOE, AMEX, ISE, PHLX and PCX. Each exchange that lists an option posts a bid/asked, and the prices are taken from the exchanges.

QuoteVue
OptionVue 6 works with seamlessly with NetVue and QuoteVue to provide all the information you need in OptionVue 6. After installing OptionVue 6 just make sure QuoteVue is chosen from the drop-down menu of the Continuous Data Interface. QuoteVue is provided free during your trial period and available at competitive monthly and annual rates. The QuoteVue service includes access to all the equity and equity option exchanges (NYSE, NASDAQ, AMEX and OPRA). Exchange fees apply for any of the futures exchanges. To help control network traffic and server loading, QuoteVue has a 1,000 symbol limit. In the OptionVue 6 program you will see the number of symbols currently subscribed by looking in the upper right hand area of the main form. If more than 1,000 symbols are requested the number is displayed in red. Quotes will continue to be received, but only for the first 1,000 that were requested.

sSignal
The Signal Data Manager (SDM) is needed when working with eSignal. When starting both programs, it doesn't make a difference which one you start first. You can start SDM first and then OptionVue 6, or start OptionVue 6 and it will start SDM for you. When you select Signal DM, the location of the Signal Data Folder is required so OptionVue 6 can launch the Signal Data Manager.

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Managing Your Symbol Limits

Both eSignal and QuoteVue limit the number of symbols that can be active at any one time. For that reason we have built our interface to enable you to better manage this limitation with minimal intervention on your part. First, the symbols for all items on the Quotes Display are normally active, and count against your symbol limit. When you open a Matrix, all the symbols for the assets and options contained in the Matrix are submitted. Each of the these symbols counts against your limit. With a Matrix that has a lot of actively traded options such as Yahoo!, there are 15 active strikes in 4 expiration months for a total of 120 different option symbols. There are also 60 LEAPs, if you have included them in your stock files. Adding in the actual stock itself, this would be 181 symbols counting against your limit! To manage this large number of symbols, when you close the Matrix OptionVue 6 deletes all those symbols so they no longer count against your limit. This means you should be able to open and close Matrixes all day without hitting your symbol limit. This may not be enough, however, if you also have a lot of symbols in your Quotes Display. Therefore we also allow you to selectively enable and disable sections in the Quotes Display to economize. A colored box appears on the left of each section header of the Quotes Display. Clicking this box so that it turns green enables quotes in that whole section. Clicking the box so that it turns yellow disables quotes in that section.

Use $PREM to Compute Front SP Future

When working with the OEX (S&P 100) or SPX (S&P 500) indices, the best modeling requires prices for the S&P 500 futures trading at the Chicago Mercantile Exchange (CME). If you prefer not to subscribe to the CME, you can tell OptionVue 6 to use the $PREM index to calculate the price of the front month SP future. $PREM is based on the difference between the front month SP futures contract and SPX. If this feature is used, the program then calculates the price of the front month S&P 500 futures contract as $SPX + $PREM. You should be aware that this approach has one major drawback: The program usually needs the two nearest SP futures contracts in order to "cover three expirations of OEX options. That is because an option can only "look to a futures contract with a life span equal or greater than its own. So as the front month futures contract approaches expiration, the options that can look to it are only the nearbys. The second month or farther out options are forced to look to the OEX itself, thus ignoring the important influence that the S&P 500 futures market has on the S&P 100 index.

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Suspend Quotes Reception

This button allows you to freeze the action temporarily when using a continuous data service so that you can analyze positions without the prices constantly changing. You then resume the data feed by clicking the same button (which now shows Activate Quotes Reception).

When continuous quotes are suspended, the program logo displays an "S in the center. Double-clicking the program logo toggles quotes suspension on and off.

Batch Updating
When you pick out one or more files to be updated all at once, it is what we call batch updating. If you use a continuous data service, you can batch update asset files by clicking the program logo and then clicking the Batch Update button at the bottom of the dialog box.

In batch updating, you will always see two boxes: An Update box and a When box. These are explained in the next sections. While the examples we give here discuss asset files, similar Update and When boxes work the same way for historical price files as well. 183

User's Guide

The Update Box

This box allows you to select the asset files you want to update. Your choices are All Asset Files, Asset List, or Selected Assets. All Asset Files. If you select All Asset Files, the program will update asset files indicated in the Quotes Display, automatically creating new files if necessary. This latter feature is of benefit because, when you want to start working with a new asset all you have to do is add its symbol to the Quotes Display, then choose to update all asset files. In a batch file update you may as well choose to update all your asset files, since it won't hurt to update your favorites once more (after all, if you allowed some time to go by, the server might have collected a more complete set of options settlement prices). Asset List. The second choice - Asset List - allows you to group your assets into user-customizable lists. For example, you can make a list called STOCKS and include all your stocks in it. To create and manage lists, click the ellipsis button next to the list name field. You will see an Asset list dialog box appear, which contains a "master list of assets. This master list includes all existing asset files, plus any further assets in the Quotes Display. (Note: the master list of historical price files will not include further assets indicated in the Quotes Display.) Choose List | New from the menu of the Asset List box to create a new list. You can name it anything you want. Then add assets from the master list by selecting them and clicking the left arrow button. You can remove assets from your list by selecting them and clicking the right arrow button. You can create as many lists as you want. Selected Assets. Selected Assets allows you to individually pick one or more assets. You can type the symbol(s) directly into the field below, separated by a comma or semi-colon. You must enter the base symbol(s) of the desired asset(s), not individual futures contracts. For example, for the S&P 500, enter "SP. There are four buttons to the right of Selected Assets to choose from. The first button is an ellipsis button. It allows you to pick your file(s) directly from the list of existing asset files in your /Data directory. The other three buttons available are the "paste-in buttons. The first paste-in button (with a small red '1 on it) copies in the base symbol of the selected item in the Quotes Display. The second paste-in button (with a small red 'G on it) copies in the base symbols of all the items in the selected group in the Quotes Display. (A group is all items under a particular heading. Just select any item in a group and click the group paste-in button). The third paste-in button (with a small red 'A) copies in the base symbols of all the items in your Quotes Display. 184

Note: The Update box for historical price files also has a "Setup button, leading to a dialog where you indicate some preferences with regard to your price files, including how long a history you want contained in your historical price files.

The When Box

The When Box allows you to select when you want the batch update to happen. You can either make it happen now, or set it to happen automatically at a future time or at regular intervals. When you make any choice other than "Now", it automatically sets up a scheduled event in the Agent. This event can then be deleted or modified at any time through the Scheduling Agent. To set the update to take place at a certain time, click the 'At radio button and enter a time (all times are in 'hh:mm 24-hour (military) format). To set the update to take place at regular intervals of anywhere between one minute and 24 hours, click the 'Every radio button and enter a time. To set the update to take place every trading day at a certain time, click the 'Every trading day at radio button, and enter a time.

The Scheduling Agent

When you set an event to happen at a time other than "now, the event is logged in to OptionVue 6s Scheduling Agent. The Agent keeps track of scheduled events and launches them at the appropriate times. A red 'A icon like the one below appears in the upper-right near the program logo.

Click on the Agent icon and the Agent dialog box will appear.

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User's Guide When you schedule an event, all the details of that event (including what asset files are to be updated) are sent to the Scheduling Agent, where the event resides independently. Nothing you do after that, such as telling the software to update just one asset, has any effect on scheduled events because events can be modified or deleted only in the Agent. You can set up events directly within the Agent, or by using the "When" section of any of the various update windows. Most types of events may be scheduled any number of times. For example, you may schedule the updating of one batch of asset files at one time and a different batch of asset files at another time. The same goes for price charts, OpScans, and other tasks. The only events that you may not schedule more than one instance of are the BDB update and the automatic file backup procedure. There are ten different types of events that may be scheduled:

Update asset files Update price chart files Update open windows from ASCII file Run OpScans Update asset files with continuous data service Import data from ASCII file Export data to ASCII file Print reports Back up key files Assess accounts

Many of these make use of NetVue services. If you schedule two or more of these to happen at the same time, the program automatically consolidates them so that they happen in a single session with NetVue. The Suspend Agent button allows you to stop scheduled events from happening. When you click this button, the message "The Agent is Suspended" will appear in the Agent dialog box in large blue letters, and the button changes to become an Activate Agent button. No scheduled events will occur until you come back and reactivate the Agent. When the Agent is suspended, the program displays the Agent icon (in the upper right corner) with a black slash mark across it. When you enter BackTrader mode, the Agent is automatically suspended so no events are triggered.

The Message Log

OptionVue 6 has a message log for storing information about recent batch events. To open the message log select View | Messages from the main menu, or click on the icon (a box with a lightning bolt) on the mail toolbar in the upperright corner of the workspace.

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Here you can see time-stamped results of various batch operations. Besides the success or failure of an operation, you may be interested in seeing the percentage fulfillment. This is the percentage of items within an asset file for which you were able to obtain quotes. Here you can also the results of your OpScan reports and any scheduled events. When creating Alerts, you can choose to have them post a message here as well. The check boxes at the bottom let you see only the Alerts, or only the other messages. When both boxes are checked, you will see messages of all types displayed.

Deleting Files
You may selectively delete any asset or price chart files you no longer wish to keep. This can help to speed up your downloads considerably when you have chosen to update all asset files, or all price chart files. In the main menu, select File | Delete and the delete files dialog box will appear.

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User's Guide The dialog box will automatically open on the Asset Files tab. You will see a list of all the asset files in the Data folder. You can choose to delete a single asset file here, or you can conveniently choose to delete those asset files no longer represented in your Quotes Display. You can also choose to delete all your asset files if you wish. To select a single asset, simply click on a symbol to select it (it will highlight) and click on the Delete button. To selectively choose more than one, hold down the Ctrl key and click on the assets you want to delete. Hold down the Shift key to choose a contiguous group of symbols. Highlighted files will not actually be deleted until you click on the Delete button. If you keep historical price files in OptionVue 6, deleting price chart files works in exactly the same way. Click on the Price Chart Files tab. There you will see the price chart files in your Hist folder. You can delete one file, a group of files, or choose to select all price files not represented in the Quotes Display. There are other ways you can delete these files from OptionVue 6. When you right-click on an item in the Quotes Display, it brings up the Properties dialog. On the right side of this dialog box are two buttons one for deleting the asset file and one for deleting the price chart file. You can also use Windows Explorer to navigate to the correct folder under the main program folder (Data for asset files or Hist for the historical price files) and delete the files from there.

Australian Data
There are a number of Australian indices and stocks maintained in the Background Data Base. OptionVue 6 identifies ASX underlying assets using the 3 character ASX symbol plus the suffix "A. You can find an asset's symbol under Edit | Look Up in the main menu, and can Insert it into the Quotes Display from there. When manually entering any asset from the Australian Stock Exchange (ASX) into the Quotes Display, type the underlying ASX symbol followed by "A. For example, for Fosters Group you would enter the symbol as FGL-A. OptionVue 6 will then identify FGL-A as an ASX asset, and not confuse it with any asset with the symbol FGL on a US or other international exchange. All prices, of course, are in Australian Dollars. The ASX maintains a current master list of all option symbols traded on the exchange entitled options_code_list.csv. You must obtain the file from the ASX web site and copy it into the Bkgnd folder to receive quotes into the program. It is important to keep a fresh copy of the options_code_list.csv file in the Bkgnd folder. The program refers to this file for options symbols any time the user opens the Matrix of an Australian asset. The file is available at: 188

www.asx.com.au/data/options_code_list.csv. Look for the link entitled Options Code list. Important Note: The ASX has changed the name of this file and its location a number of times in the past. If they do this you must rename it to options_code_list.csv, the file name OptionVue 6 looks for, before copying it to the Bkgnd folder. The program will display a notice if it cannot locate this file. A reminder is also displayed suggesting that the user obtain an updated copy if it is more than four weeks old. All the main features of OptionVue 6 work identically with Australian assets as they do with the American ones used as examples throughout this guide. Getting Prices. OptionVue Systems provides end-of-day prices for Australian assets through NetVue to program owners for an additional fee. Free data is included with your trial package. For real-time continuous data, OptionVue 6 is compatible with Weblink BullSignal. It is a real-time data feed containing ASX Options, Stocks, Indices, and Warrants and distributed over the Internet. For our Australian Customers. Paul Wise and Options21 has been an authorized, full service OptionVue 6 Dealer for many years and knows the Australian and U.S. markets. They are very knowledgeable about OptionVue 6 and compatible Australian data vendors. For a more information visit www.optionvue.com/Dealers.aspx.

Using OptionVue 6 in other International Markets

OptionVue Systems is well-known for the accuracy of its analytics and the program features are applicable irregardless of the market being traded. But it does involve a little extra work if you are trading markets not contained in our database. First you need to manually set up the asset files you are interested in following. With the necessary information at hand such as symbols, contract specifications, strike prices and expiration months available you can quickly define them. For complete instructions on how to do this, refer to the section Defining Information for an Asset. Of course the most vital factor in using OptionVue 6 is obtaining current prices. OptionVue 6 can do little without current quotes. You can always manually type prices into the Last price field of every item, of course. But that is unrealistic for anyone trading more than a couple of assets. The other way to feed large amounts of data into OptionVue 6 is by importing it as an ASCII file. This allows you to import large amounts of data quickly and easily into the program. After the initial set up, the entire process can be 189

User's Guide automated. For a detailed look at how to accomplish this, read through the entire section OptionVue 6 Import and Export Features. For our European Customers. Geert Strubbe has been an authorized, full service OptionVue Dealer for many years and knows the European and U.S. markets. He also has historical volatility and up-to-date dividend information for some European assets. Geert is knowledgeable OptionVue 6 and compatible European data vendors. For a more information visit www.optionvue.com/Dealers.aspx.

Importing Prices from another Program

OptionVue 6 can bring in prices from another program via ASCII files. What is an ASCII file? It is a human-readable file. If you open a file using a program like Notepad and you see information that looks like this: IBM,S,,,111.125,109.5,109.75,1540000 IBMEB,O,4.5,4.75,5.625,4.5,4.625,4600 IBMEC,O,2.125,2.375,2.625,1.9375,2.125,5800 IBMED,O,1.0,1.125,1.4375,.75,0.875,14600 It is an ASCII file. If you see gobbledygook like this:

Its not an ASCII file. OptionVue 6 can read current prices from one or more ASCII files and use that information to update your asset files and your historical price files. It can also import positions, if you like. (You will find this option in the Line Format.) When preparing to import an ASCII file containing current prices, the File Format button in the ASCII Import dialog leads to a new "import wizard, styled after the one in Excel. In addition to specifying the order of fields, the wizard also allows you to specify whether the file is formatted in fixed column widths or delimited (it does a pretty good job of guessing this on its own when you first enter the file name), specify the delimiter, and see a preview of how the data in your file is going to be interpreted. OptionVue 6 can also import ASCII files containing transaction records into the Transaction Log. The import wizard mentioned above is used for this. You can specify a date range and only records in this range will be imported. The import wizard will check for duplicate records and ask if you want to replace or skip. 190

Setting Up (ASCII Import)

Access the Import function through the main menu by choosing File | Import. It just takes a few moments to set this up the first time you use it.

The "Update and When boxes should be familiar to you. (You can read about them in detail in the section on Batch Updating .) The "Import file path and name field is important. This is where you enter the fully qualified file name(s) of one or more ASCII files from which OptionVue 6 is to pull its information. "Fully qualified means you need to type the path as well as file name(s). If you want to draw from two or more ASCII files, separate their fully qualified names using commas or semicolons. You can enter any number of ASCII files. However this field only allows 255 characters, max. TES is a unique file format used by some of OptionVues European clients. If you are not familiar with TES, leave this unchecked.

Overall Format
ASCII files are accepted in two different formats: comma delimited and tabular. In the comma delimited format, each parameter must be separated by a single comma, as shown below. There must not be any other commas (e.g. the number 1,234.5 should be stored without commas as 1234.5).

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User's Guide The following example illustrates a valid comma delimited ASCII file, where the line format specification is included as the first line: SYMBOL,TYPE,BID,ASKED,HIGH,LOW,LAST,VOL IBM,S,,,111.125,109.5,109.75,1540000 IBMEB,O,4.5,4.75,5.625,4.5,4.625,4600 IBMEC,O,2.125,2.375,2.625,1.9375,2.125,5800 IBMED,O,1.0,1.125,1.4375,.75,0.875,14600 Note: The empty bid and asked fields for IBM stock is one way to indicate when data is not available. Others are the letters NA in the field or asterisks (****). In the tabular format, the information must appear in neat columns, with one or more blank spaces in between the columns. There must not be any commas at all in the file, except in the line format specification, if it is included as the first line. The following example illustrates a valid tabular ASCII file, where the line format specification is included as the first line: TICKER,BID,ASKED,HIGH,LOW,LAST,VOL IBM 111.125 109.5 109.75 1540000 IBMEB 4.5 4.75 5.625 4.5 4.625 4600 IBMEC 2.125 2.375 2.625 1.9375 2.125 5800 IBMED 1.0 1.125 1.4375 .75 0.875 14600 The columns do not have to line up perfectly. OptionVue 6 can tolerate a certain amount of extraneous text in the file, such as column headings and dashed lines. In either format, numbers may be expressed either fractionally, decimally, or as integers. E.g., 31.75, 12 5/8, and 102 are all acceptable numbers. Prices should not contain any currency signs.

Line Format (ASCII Import)

Each line in an ASCII file represents one item an individual stock, option, index, future, etc. Items (lines) may be provided in any order. However, the data within each line is most definitely ordered. You must find out the order of parameters in your ASCII file(s), and enter this information into the program. Click the Line Format button. To add a parameter, select it from the list and click the left arrow button. To delete a parameter, select it in the list and click the right arrow button. Modify the parameters in the list on the left until you have the same parameters, in the same order, as in your ASCII file. To change the position of a parameter, select it and click the Move Up or Move Down buttons. When finished, click OK. 192

In-File Line Format

As an alternative to entering the line format in OptionVue 6, the line format can be in the file itself. It has to be the first line in the ASCII file, and must consist of a series of the following parameter names, separated by commas: TICKER or SYMBOL. This is the ticker symbol of the item. The ticker symbol is vital for matching up items in the ASCII file with items in OptionVue 6s asset files. Thus it is a required parameter. All the other parameters are optional. Ticker symbols should not contain any spaces. If your ticker symbols contain spaces, you should edit them to eliminate the spaces. TYPE. A single character indicating the kind of item this is: B - Bond, C Commodity, E - Currency, F - Future, G - Futures option, I - Index, O - Option, R - Currency Option, S - Stock. If you do not provide the "TYPE, the program will use the first matching ticker symbol it encounters in the ASCII file, regardless of its intended type. With smaller files e.g. just the OEX and its options, you may leave TYPE out. Type is sometimes necessary for distinguishing between items which have the same ticker symbol. For example, the potentially ambiguous symbol TIF could identify the stock Tiffany or one of the call options on AT&T stock. If you are working with large ASCII files it would be a good idea to include the TYPE parameter in your line format. DATE and TIME. The date of the data should be in yymmdd format (e.g. 061222). If you do not provide the date, OptionVue 6 will automatically datestamp each item with the current system date. Time should be in hh:mm format (e.g. 19:45). If you do not provide the time, OptionVue 6 will automatically time stamp each item with the current system time. Other Common Format Items

LAST or CLOSE: The "last trade price. CHG or CHANGE: The change from yesterdays close. BID: The bid price. ASKED or ASK: The asked price. HIGH or HI: The high price for the day. LOW or LO: The low price for the day. PREV or YEST: Yesterdays closing price. VOL or VOLUME: The days volume. OI or OPENINT: The open interest. EXPOS or POS: Your existing position. TRADE: Your contemplated position.

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User's Guide When your ASCII file contains data fields which are irrelevant to OptionVue 6, you may use the "Placeholder" parameter to identify them as such. A line format specification contains any number of the above parameters in any order, separated by commas. Spaces are ignored. Upper and lower case characters are interpreted the same. You may enclose the parameters in double quote marks, or leave them off.

Running the ASCII File Import

Now, if all you need to do is import ASCII file(s), youre all set. Click the Update Files button and away you go. The program opens the ASCII file(s) and reads their contents into an internal table. Then it proceeds to update each asset file against that table with current quotes and freshly computed volatility. Any items not found in the ASCII file will have a blank price and volume entered for them, and their date/time stamp will be updated. As the program works, it displays which asset file it is working on. These may go by so fast you can hardly read them. When finished, the program posts a message in the message log indicating the percentage of requested items that were filled. Once you have your information set, you can choose to show a quick ASCII import button on the main form. This is found under File | Preferences the Settings tab. The "Update" button will invoke the settings contained in the ASCII import dialog.

Getting Fancy
OptionVue 6 is capable of a more elaborate process than just importing ASCII file(s). It can trigger an external program prior to the actual import operation. This outside program, either provided by the user or obtained from a third party, must automatically interface with a retrieval service and put current prices into an acceptably formatted ASCII file. To use this feature, check the Invoke an external program prior to import box, and enter the fully qualified path and file name of the program. Also indicate whether type codes should be included, and whether option symbols should be "space expanded (a space inserted between the base and the extension). Is it important for your external program to be provided a file of needed symbols? If so, check the Output File Of Needed Symbols box, and enter the fully qualified name of the file into which you would like this list of symbols stored. This file of symbols is a very simple ASCII file. It contains only symbols, or both symbols and type codes if you checked the Include Type Codes box. 194

Examples: Symbols only: GM GMKR GMKS Symbols and type codes: GM,S GMKR,O GMKS,O

If you ask the program to output a file of needed symbols, this will be the first step performed. Next the program will launch the external program. At that point the program begins to watch the ASCII file for its date/time stamp to change. When it sees this change, it goes ahead with the import.

Importing Targets From Another Program

OptionVue 6 is able to import an ASCII file containing price projections for any number of different assets. The name of this file has to be TARGET.DTA, and you should put it in the same folder as your OptionVue 6 asset files, normally the DATA folder. OptionVue 6 will automatically find and read this file. Following is its format:

Each line represents the forecast for a single asset. Each line contains a variable number of fields separated by commas or spaces. The first item on a line is the assets base symbol. The second field is an ordinal number representing the type of asset it is: 0- Stock, 1- Index, 2- Bond, 3- Commodity, 4- Currency, 5- (Unspecified) The third field is an ordinal number representing the type of price target being specified: 1- a discrete price, 2- a price range, 3- a lognormal distribution centered on a specific price The next one or two fields are real numbers.

If you specified price target type 0, then you must provide one number, the discrete price. If you specified price target type 1, then you must provide two numbers, the low and the high, in that order. If you specified price target type 2, then you must provide two numbers: the center price and volatility. This volatility figure will be used to compute the "breadth" of the lognormal distribution. If you have no volatility figure to provide, you may indicate this by entering zero. This will cause the program to substitute its own recently measured volatility.

The next field is an ordinal number representing the type of date target being specified: 1. - a single date 2. - a range of dates 195

User's Guide If you specify date type 0, then the next three fields are ordinal numbers representing: the month (1-12), day (1-31), and year (as two digits). If you specify date type 1, then the next six fields are ordinal numbers representing the day, month and year of the nearest date, followed by the day, month and year of the farthest date. That's all that goes into a record. Here is an example target file, containing targets for IBM, JNJ, and the OEX index: IBM,0,2,134,.23,0,9,21,98 JNJ,0,1,70,81,1,8,4,98,831,98 OEX,1,1,575.600,0,10,22,98

Exporting Prices to Other Programs

You can output an ASCII file using the data stored in the OptionVue 6 asset files. The Export function is located in the menu: File | Export. It just takes a few moments to set this up the first time you use it. You indicate which assets you want included using the Export From box and indicate when you want the export to occur using the When box. (You can read more about these choices in the Batch Updating section.) The Export file path and name field is very important. This is where you must enter the fully qualified file name(s) of the ASCII file where OptionVue 6 is to put its information. "Fully qualified means you need to type the path as well as the file name(s). You can also indicate whether option symbols should be "space expanded (a space inserted between the base and the extension).

Exporting Comma Delimited Files

Select File | Preferences from the main menu. At the bottom of the Misc dialog is a checkbox that allows you to choose to invoke a print dialog box when you print a snapshot. This can be used in conjunction with a feature that allows you to choose "Print to File" in the Print dialog, which will export the contents of the Transaction Log, Account Status, Survey, TradeFinder, and all the Portfolio Manager Reports except the Performance Graph to a comma-delimited file (.csv extension, suitable for Excel and many other programs). You can also export the contents of the Transaction Log directly to a .csv file by selecting Options | Export to .csv from the menu in the T.Log. When printing or exporting data from the T.Log, the program will ask you for the date range for the transactions you want.

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Line Format and Export

Each line in the resulting file represents one item; an individual stock, option, index, future, etc. The information in each line is ordered by the line format specification. To set the line format specification, click the Line Format button. To add a parameter, select it from the list on the right and click the left arrow button. To delete a parameter, select it in the list on the left and click the right arrow button. Modify the parameters in the list on the left until you have the parameters you want, in the order you want them. To change the position of a parameter, select it (so it is highlighted) and click Move Up or Move Down. When finished, click the OK button. There are more parameters available for export than are available for import. The export parameter list includes all the parameters discussed previously in the Importing section, plus the following: Description (e.g. Apr02 610 Calls), Theoretical Value; Percent Over/Under; Delta; Gamma; Theta; Vega; MIV (Mid Implied Volty); At Price; Original Price; Projected Volty; Probability to finish ITM; and Percent to Double.

Running the ASCII File Export

When you are ready to export, click the Export button and away you go. The program opens each asset file and transfers information into the ASCII file. When finished, the ASCII file is closed. Each time you export, the program replaces the existing ASCII file with a new one. As the program works, it displays which asset file it is exporting. These may go by so fast you can hardly read them. When finished, the program posts a message in the message log indicating how many items were exported.

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User's Guide

Earnings Search
Many traders focus on earnings announcements and like to consider taking positions prior to or just after such announcements. For this reason we incorporated a search function called Earnings Search. This gathers a list of stocks which are supposed to announce earnings after the close today or before market open tomorrow. The information is obtained from a web site called earnings.com. Please know that we do not have an agreement with earnings.com, and we cannot guarantee the information to be correct. Also, if earnings.com changes anything about their web site, it could cause OptionVue 6 to be unable to pick up information. A good way to use this new feature is to first click on a row in the Quotes Display where you would like to insert new symbols. Then open the Earnings Search form by clicking on the new red E in the upper right area. (An alternate way to open the form is to select View | Earnings Search from the main menu.) There will be two checkboxes regarding the dates to look for.

Click the Go button to start the process of gathering names.

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The form has columns for displaying Symbol, Name, and Date The date field can include either AMC, which means after market close, or BMO, which means before market open. Youll see that all the AMCs come first, followed by all the BMOs. Once the list is filled in and you see the words Search Complete at the top of the form, you can select one or more stocks by clicking on them - using the traditional Ctrl and Shift key selection methods to select and deselect multiple stocks. With one or more stocks selected, the Insert button appears and you can click on it to copy symbols over into the Quotes Display. Note that you can tell which stocks have options by referring to the DVO field. If there is a DVO number, the stock has options. A checkbox at the bottom will highlight all the stocks in the list that have options Another way to select certain stocks from the list is to use the checkboxes at the bottom of the form. These rely on data in two more helpful columns stock price and DVO which the program fills in automatically for you from the database. Since stock price is from the database it could be a little stale, but thats ok because the aim is to have a general idea of the stock price for filtering purposes.

One of the check boxes allows for filtering out stocks below a given price level. It is also possible to filter out stocks below a given level of DVO (dollar volume of options trading). Again, once you have selected the stocks you are most interested in just click the Insert button and the program copies the symbols into the Quotes Display. 199

User's Guide

BackTrader
BackTrader is an optional service available for a reasonable monthly fee that allows you to access historical options data in OptionVue 6. Since January 1, 2001, we have been building a quotes archive in DataVue, storing historical data for all assets and their related options. This involves taking a "snapshot" of the entire market every hour during each trading day. Using the DataVue quotes archive, BackTrader transports you back in time to see quotes, charts, and everything in the program as it was in the past. BackTrader is a powerful tool for learning how different markets move over time, and lets option traders at all experience levels sharpen their trading skills using real-world market data. Are you a stock trader? Try trading options on some of the broader market indices such as the NASDAQ 100 (QQQ) or experiment with using them to hedge your stock portfolio. Or, try trading some of the different futures markets. Are you still fairly new to options? BackTrader can help you understand how options behave. Observe how option premiums move in relation to price and volatility changes, and get a feel for the effects of time decay. Are you an experienced option trader? Use actual option prices to practice new trading strategies and techniques on a favorite asset without the risk of losses! Ever wondered how an option you are looking at traded earlier that day? With BackTrader you can go back a few hours and see what price it was trading at then (as well as the contract volume and other useful information). It is usually easier to be objective in a simulated trading environment than the real market. With real money at stake, emotional reactions can sometimes cloud your judgment. However, practicing being detached and objective during the paper trading may increase your chances of following this approach in real life. While you can't change the past, you can use your past experiences to sharpen your trading skills for the future with BackTrader.

Using BackTrader
To access BackTrader, select NetVue | BackTrader from the main menu. This will bring up the BackTrader dialog box:

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Enter a starting date and time, make sure the market hours are correct (BackTrader automatically starts at the local time of the market close) and click the Start button. OptionVue 6 automatically accesses the DataVue Quote Archive and updates all open windows with data from the chosen date and time. The BackTrader Dialog box will remain visible at all times while you are in BackTrader mode, showing you the "current" date and time. To move the dialog box to another part of your screen, simply left-click on the title bar, holding the mouse button down and drag the dialog box to where you want it. The program will remember your favorite (i.e. last) position for the dialog within the workspace for the next time you access BackTrader. You can move both forward or backward in time. Clicking the "S" buttons will change the time by hour intervals, the "D" buttons by a full day at a time. After clicking the "S" or "D" button, the program waits for a 5-second pause to see if you are going to click the "S" or "D" buttons any more before it updates all open windows to the chosen day and time. You can also type the date and/or time in the BackTrader window manually. The Date field in the BackTrader window also accepts entries like T+n and X1 (just as long as you dont try to advance it to a date in the future). Once the open windows have been updated, all features and functions work in the program just as it was on that date and time. The Quotes Display, Asset Specific functions, Portfolio Manager, Trade Finder, Survey, and Probability Calculator are all available in BackTrader mode. You can browse Matrixes, Price Charts, and Volty charts off the Quotes display and Survey Results. Note: Dividends, CEV factor, futures margin parameters, etc. do not revert to past values, and the OpScan service is not available in BackTrader mode. BackTrader can be set to earlier this day only after the user has obtained current quotes from NetVue. Once the user has received current quotes from NetVue, BackTrader can be set to today's date. 201

User's Guide If you use a continuous data feed with OptionVue, price updating stops the moment you enter BackTrader mode. When you leave BackTrader mode, your continuous quotes are automatically suspended. (The logo will have a big "S" on it showing quotes are suspended. Double-click the Logo to restart your real-time updates. Once you have chosen a date and time for BackTrader mode, updating with historical data is easy with DataVue. When you choose a date and time, all open windows are automatically updated with the appropriate historical data. Note: Batch Updating works in BackTrader mode but is not recommended. It is best to just open a Matrix or two. If you need to batch update (in preparation for using Trade Finder, for example) try to limit the number of files to just a few assets. The scheduling agent is suspended while in BackTrader mode. The program also remembers the setting (if it is active or suspended) that was applicable before entering BackTrader mode and then returns the Agent to the appropriate setting when you exit BackTrader mode.

Temporary vs. Existing Files

When you first start BackTrader you will see a pair of radio buttons entitled Store to temporary asset files and Store to existing asset files at the bottom of the dialog. Using BackTrader with your existing asset files can cause problems by wiping out current volatility data and other information. Therefore we made the program store asset files into a temporary folder by default while you are in BackTrader mode. This allows you to make sure your current asset files remain unaffected by any work you do while in BackTrader mode. With Store to temporary asset files chosen, the program automatically creates a temporary folder called TempBT off of the operational folder the folder from which you launch the OptionVue program and any time you close a Matrix or do anything else to cause an asset file to be saved, the program saves it in this folder. This temporary folder is deleted when you leave BackTrader mode, along with all its contents. This means that many of the changes you might make such as changes to formats, preferences, and targets will be lost once you leave BackTrader mode. If you want BackTrader to update past data in an existing asset file, such when you want to go back and load three days of data for a more complete variable volatility model, select Store to existing asset files when you start into BackTrader. Any changes you make when using existing asset files will also be saved even after you leave BackTrader mode. 202

Now, let's go over how the different program functions work in BackTrader mode, along with some hints and tips on how to get the most out of this unique feature.

Asset Specific Functions in BackTrader Mode

The Matrix. All functions in the Matrix toolbar are active in BackTrader mode. All the data, days to expiration, and information shown in the summary section will be as of the date and time shown in the BackTrader dialog box. Accessing the NetVue database the program will automatically re-establish expired options and set up the appropriate strikes and expiration dates for the date you have jumped back to. Price Charts. Price charts continue to use your local historical price files, except that "future" data beyond the date you have jumped to is ignored. All functions accessed from the Price Chart toolbar are active in BackTrader mode. You can choose Daily, Weekly, or Monthly Charts. You can adjust for stock splits, edit information, set a target with the BullsEye button, superimpose the volty chart and use the Put/Call Ratio Charts. Volty Charts. Like the Price Charts, the volty charts ignore the "future" data beyond the date you have jumped to, so the Volty Chart's max history will shrink. All other functions, including being able to superimpose Price Charts, work as normal.

The Portfolio Manager in BackTrader Mode

All the functions of the Portfolio Manager are active in BackTrader mode. For testing purposes, you may want to set up a new account for paper trading. When using the Convert Trades button in the Matrix, the transaction will be added as of the day and time shown in the BackTrader dialog box. As you move forward in time, Status will show open positions and their value as of the BackTrader date. When performing an Expire Options operation, the program automatically gives entered Xpr transactions today's date, rather than the option's expiration date. This allows the program, when using BackTrader, to go back to a time when you had an option position, and bring that option position "back to life" (i.e. show it in Account Status, etc.). Make sure to take advantage of the Portfolio Manager Reports available. You should find the Performance Analysis (summary) report especially useful. This will break down your results into winning and losing trades, and might give you good ideas for adjustments to try in your trading strategies. Try using and adjusting the objectives and stops available in the Status of Account. Learning when to exit a trade can be just as important to good trading results as knowing when to place the trade initially. 203

User's Guide You can also go back and try again using your real trading records. Simply create a new account and use the parcel function to copy the transaction log from one of your real trading accounts into a new test account. Now choose a date to go back to and click Start. Everything will be just as it really was then. As you move forward through time, watch the trades you placed appear in the Account Status. See what was happening at the time, and what you might have done differently. Try different adjustments, hedging techniques, or stops and objectives to see what gives you the best trading results.

The Auto-Scan Tools in BackTrader Mode

Trade Finder. All Trade Finder functions are active in BackTrader mode. Just input your expectations and goals in the assets, targets, strategies, goals and filters tabs as usual and click the Go button. You can import targets that have been set in the Price Charts, do a quick analysis from the results, and add or send trades to the Matrix. Everything is run from the date shown in the BackTrader dialog box. Naturally, the repeat continuously feature will not be useful in BackTrader mode, since you cannot use a continuous data feed in BackTrader mode. Survey. All the features of the Survey function are operational in BackTrader mode. You can browse Matrixes, Price Charts, and Volty Charts from the Survey results, and add assets to the Quotes display as you normally would. The Survey is a great place to start in BackTrader Mode. Use it to find new candidates you might want to try trading. Are you primarily a directional trader? Here is your chance to try some volatility trading instead. There are a number of volatility indicators you can use to pick and sort potential candidates to trade. OpScan. The OpScan service is not available in BackTrader mode.

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OpScan
Scanning the Options Universe with OpScan

OpScan is a service for scanning the universe of listed options for potential trading opportunities. Start every trading day armed with a list of opportunities created for your personal strategies and trading style. Then continue scanning for trading opportunities throughout the day. You may want to use OpScan to find over- and under- valued options that you can trade for small profits every day. Or strike it big when OpScan tips you off to a big price move (almost all takeovers, and many stunning news announcements, are preceded by unusual options activity). Interfacing with the OpScan service is easy. All you need is... Access to the Internet. The OptionVue 6 software. A valid OpScan user ID and password (your NetVue user ID and password is stored under NetVue | Comm Settings) in the main menu. ...and youre ready to put OpScan's awesome power to work, searching out those unusual trading opportunities you usually read about only after they're long gone.

Starting out with OpScan

OpScan access is built right into OptionVue 6. Locating opportunities that match your needs and trading style can be accomplished in a matter of seconds. And,

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User's Guide because you get unlimited OpScan for one low monthly or annual charge, you can search the trading universe as often as you like. Using OpScan is easy. Here is how it works: OpScan works by formulas which query our data base to find your trading opportunities. You use the OpScan language to create a formula. The formula will contain expressions like: LAST > 1.5 and VOL > 500. These formulas tell the OpScan service exactly what youre looking for. Now dont panic if you werent an algebra genius in school! Youre going to find that these formulas are easy to understand and use. We will go into the parameters available and how to construct formulas later in this chapter. To get you up and running quickly, we have included a dozen built-in formulas developed over the years here at OptionVue Systems.

Accessing OpScan
To get into OpScan, click the OpScan button on the main toolbar, or choose NetVue | Run OpScan(s) from the main menu. This will bring you directly to the OpScan Formulas window. You do need to set your Comm settings (a valid NetVue User ID and Password) before using OpScan. This OpScan Formulas window displays the titles of all your available OpScan formulas. The first time you open this dialog you will only see the titles of the built-in OpScan formulas. As you add new formulas, they will be shown in this list. Click the checkboxes next to the scans you want to run. Once you have selected the OpScan formulas you want to run, choose "when" you want to run them and then click the Connect button. The "Connecting to NetVue" dialog will appear, showing you what scans are running and how long they take. Once completed, the View OpScan report window will open. To view the OpScan report you want, select it by clicking on the title (so it is highlighted) and then click the View Report button. You can also double-click directly on the report title to open it.

Formula Dialog Buttons

In the OpScan Formulas window you can copy, modify or delete any formula listed.

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Click on an OpScan title to select it (It will highlight), and use the buttons underneath to customize any scan. You can also create a new formula from scratch. Below is a list of each of the important function buttons and a short description of what each does: Select All Button. This checks all OpScan formulas. Deselect All Button. This unchecks all OpScan formulas. New Button. Choose this to create a new OpScan formula from scratch. When adding a new OpScan formula, you can simply start typing in the appropriate boxes, or choose to copy in a built-in formula to use as a starting point by clicking the Built-in button. If you keep the box checked for Extra prompting during formula assist, the program will notify you if it sees you try to type in anything that does not fit the OpScan syntax rules. Copy Button. This allows you to copy a selected formula, rename it and then modify it as a completely new formula. A dialog box will appear and ask what you would like to call the new formula. Type in the name you want and click OK. You will then get a dialog box similar to New with the information imported from the selected formula. Modify Button. This allows you to change the formula of the selected scan. Any changes made are saved under the same name. The previous version of the formula is written over and cannot be restored. Delete Button. This button will permanently delete the selected OpScan formula(s). Only built-in formulas can be recovered once deleted (through the Built-in button under New). Any formulas you created yourself are gone for good. View Reports Button. To the right of the dialog box, under the Connect button of the View Reports button. Clicking this button brings up the View OpScan 207

User's Guide Report Dialog. Here you can see all the past OpScan reports that are contained in your Program Files/OptionVue 6/OpScan folder. Double-click on a report title to view a report.

How OpScan Works

Once you click the Connect button, OptionVue 6 will access the OpScan service through the Internet and submit your formula(s) to the NetVue server. A confirmation dialog appears that the formula was accepted and shows the progress of your scan.

Dont blink! OpScan is remarkably fast. A typical scan takes only a few seconds. When it is finished, the OpScan service sends its official report(s) to your computer. OptionVue 6 then collects the report(s) and places them in the Opscan folder. The OpScan reports are text files. The files are named OpscanRpt, followed by the date (in the format YYMMDD), followed by the number of reports you have run that day. For example, if it is the third report you have run on January 2, 2009, the report filename will be OpscanRpt09010203.Txt.

How to View OpScan Reports

When you run an OpScan session, the View OpScan Report window comes up on the screen automatically. The program saves all the reports you have run in filename order, so the last one you ran will be the last report in the list.

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Note that as you move the cursor over the report filenames, the title of the report will be displayed in the bottom status bar (circled in red in the above illustration). Once you close the OpScan Report window, to see your OpScan reports again click on the OpScan button on the main toolbar and then click the View Reports button, or choose View | OpScan Reports from the main menu. To view a specific OpScan report, select (left-click) the report you want to view and click the View Report button. You can also right click on a report and choose View from the context-sensitive menu. Or, just double-click on the report you want to view:

The top section of the OpScan report shows the report title along with the date and time it was run and the complete formula that was run. It also includes a disclaimer pointing out the importance of doing additional research before

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User's Guide making any trading decisions. The bottom portion lists the results of the scan with all the information requested.

Printing OpScan Reports

To print a complete report, click the Print button in the upper-right part of the window. You can also choose File | Print from the main menu of the program. In the window that displays View OpScan Reports window, it is also possible to select one or more reports and send them directly to the printer. Simply highlight the ones you want to print (you can use the standard windows feature of holding down the Ctrl key to select individual reports, or holding down the Shift key to select a continuous range of reports), right-click with your mouse and choose print from the context sensitive menu.

Transfer Symbols from OpScan to the Quotes Display

Now that you have your results, youll want to add the assets that look interesting to your Quotes Display for further study. You can select any asset you want from a report and click on the Insert button, or double click on any individual asset. Doing either of these things will add the symbol for the selected asset to the location your cursor is positioned at in the Quotes Display. Holding down the Ctrl key allows you to choose multiple assets to insert. Hold down the Shift key if you want to block (select) out a section (or all) of the report to insert. You can also choose a specific group in the Quotes Display to add the symbols to. Right click on the selected asset(s) and a context-sensitive menu appears that will allow you to choose from any group that is currently set up on your Quotes Display. There is also an additional group you can choose - OpScan Results. This allows you to keep the assets from your scans separate from those you follow everyday. If this group is not already set up, the program will create it for you automatically.

Run OpScan and Batch Update with QuoteVue at the Same Time
You can run your scans at the same time you run a batch update from QuoteVue. Choose NetVue | Update Asset Files+ in the main menu for the NetVue dialog box. Then click the Run OpScan(s) checkbox. If you want to see what formulas you have chosen to run, or to make changes from here, click on the Formulas button. You can use the scheduling agent to schedule OpScan to run at specific times.

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OpScan Reports are strictly for the private use of OptionVue 6 owners. Please do not give copies of your reports to others, or in any way re-distribute the information you receive from the OpScan Service.

Constructing OpScan Formulas

You can create OpScan formulas from scratch, or copy and modify existing formulas, by clicking the Add, Copy, or Modify buttons in the Formulas dialog box. Extra spaces can be inserted within formulas for increased readability, but they are not required. Each formula is held in a separate file with the name as the Title and with a .FMA extension. Below is a sample formula:

Let's quickly go over each element in an OpScan formula. Title Box. In the Title box, enter an appropriate descriptive title for your formula. Pick Box. In the Pick box you will enter a formula that describes what assets or options you are looking for. Only items that meet the criteria you define here are included in the report. Sort Box. In the Sort box you will enter a (typically simple) formula that specifies how you want the report sorted (in what order the qualified items are listed). Show Box. In the Show box you indicate what parameters you want displayed in the report. All OpScan reports automatically include the columns Asset Name, Symbol, and Sort Value. Parameters chosen in this box will become extra columns of information in the report, with a maximum of nine allowed. Include Checkboxes. In the Include section, select the type(s) of assets you want OpScan to consider. Max Number of Items. In the Max Number of Items in the Report field you enter the maximum number of items you want listed in the report (it can be any number between 1 and 250). 211

User's Guide

Additional OpScan Tips

While you are in the Pick, Sort, or Show boxes, you can right-click or press F2 to get a list of appropriate parameters that could be inserted at the cursor. Select a parameter by clicking on it, or select using your arrow keys and hit Enter. Once you have finished entering a formula, click the Test Syntax button to see if your formula will work. Keep in mind that a syntactically correct formula will not necessarily find any qualified items. This does not mean that there is anything wrong with your formula, just that no items matched the criteria you specified. If this occurs, the body of the report will contain the message No qualified items were found. The program stores each formula as a separate file in the OpScan folder. Each individual formula you create becomes a file that is given the same name as the formulas title, plus the extension of .FMA. This allows you to easily send a copy of a single formula to someone else. Once the formula file is copied into the OpScan folder, you will then be able to see and access it within the OpScan Formulas window. Pick Field A Pick formula consists of one or more relational expressions. A relational expression is an expression with two parameters separated by one of these relational operators: = > >= < <= equal to greater than greater than or equal to less than less than or equal to

An example of a relational expression is VOL>500. This indicates that the volume today in this one option must be greater than 500 contracts. Pick formulas typically have more than one relational expression, connected by the logical operators AND or. For example, the formula LAST>1.5 AND VOL>100 will only return options with a last trade price greater than $1.50 and a volume greater than 100 contracts today. A comma is understood to be the same as AND. The following two formulas are exactly the same:

LAST>1.5 AND VOL>100 LAST>1.5, VOL>100

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Pick formulas may also include numbers and arithmetic operators (+, -, *, /). For example, the expression LASTU>1.05 * LASTU(1) means the last price of the underlying is greater than 1.05 times the last price of the underlying one day ago. In other words, the price has jumped more than 5% since yesterday. Each of the individual relational expressions in a Pick formula returns a true or false result. These results are then combined using the logical operators AND or OR. A properly constructed Pick formula returns a true or false result. Sort Field The Sort field tells OpScan how you want the qualified items returned by this formula sorted on the resulting OpScan report. Any formula you type in the sort box must return a numerical result. For example, LASTU returns the last price of the underlying, a number. If LASTU is your sort formula, then the results will be listed in order from highest priced on down. You can also use a mathematical expression as your sort formula. To see an example of this, the built-in formula Breakouts to the Upside uses as the sort formula LASTU / HIGHU(10), which means the last price of the underlying divided by the highest price of the underlying for the past 10 trading days. This causes the assets with the biggest jump over their previous 10 day high to be listed at the top, with progressively smaller increases as you go down. You can also simply have a report sorted alphabetically. Enter ALPHA in the sort field, or no sort formula at all since the default sort is alphabetic. Show Field The Show field is where you tell OpScan what information you want returned on your report. The sort value is always included automatically on OpScan reports. Type any parameters you want to see on the report, separated by commas, in addition to the regular Asset Name, Symbol, and Sort Value. For instance, if you would also like to see the Market Price and Implied Volty for every candidate returned, then type MKTPR, IV in the Show field. Some OpScan parameters are what we call underlying specific; they pertain to individual assets. Examples would be LASTU, VOLU and IV. The rest of the OpScan parameters are option specific: that is, they only pertain to individual options, such as LAST, VOL, and MIV. The section on OpScan operators and parameters are designed to make it clear which parameters are asset specific and which ones are option specific. It is important to remember that if your Pick formula consists only of asset specific parameters, then the result of your scan will be a list of assets. However, if your 213

User's Guide Pick formula contains at least one option specific parameter, then the result of your scan will be a list of individual options. Note also that: Volatilities are in % (i.e. enter 25, not .25). Stock volumes are in 100s. All dollar volumes are in $1,000s (e.g. $TVOL>50) means total dollar volume is greater than $50,000). Constructing Good Formulas 1. You will probably always want to include some kind of filter in the Pick formula that makes sure your report shows only well traded assets. Examples of statements that screen out illiquid assets would be:

ATVOL(5)>150 (meaning average total option volume over the previous 5 days is greater than 150 contracts) or ATVOL$(5)>100 (meaning average dollar volume of options trading over the previous 5 days is greater than $100,000).

2. Use a Show formula that includes all the main parameters used in your Pick and your Sort formulas. For example, if the Sort formula is TVOL$/ATVOL$(5), then your Show formula should include TVOL$, ATVOL$(5). That way, when an asset shows up high on your list, you can tell if it was because TVOL$ was exceptionally high or because ATVOL$(5) was exceptionally low. 3. Be careful about the order of arithmetic operators in complex statements. When in doubt, use extra parentheses. OpScan is not aware of the traditional order of priority for arithmetic operators, and simply evaluates statements in the order they appear. For example, you may intend the statement 0.975*STRIKE + 0.940*BID to be evaluated in the traditional way, with products being computed first, and the addition last. However, unless you use an extra pair of parenthesis, OpScan is going to compute the first product, then the addition, and then the final product, resulting in a completely different number than you intended! To make this work the way you want, use parenthesis as follows: 0.975*STRIKE + (0.940*BID). Adding another pair also wouldnt hurt, even if just for readability: (0.975*STRIKE) + (0.940*BID)

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Things you should know about OpScan

OptionVue 6 deals with volatility skewing, but OpScan does not. In OpScan, the theoretical value and Greeks are calculated using one volatility number for each asset (a uniform model). This volatility is a 3-day average (the three most recent trading days, including today) of dollar-volume weighted implied volatilities. Since OpScan is calculating the theoreticals for each assets options from a single volatility number, youll find that these theoreticals do not match up well with the real market prices for far out-of-the-money and deep in-the-money options for most indexes, currencies, commodities, and bonds. Options on these types of assets exhibit considerable volatility skewing. Therefore, OpScans theoretical prices are useful with stocks, but not very helpful with other assets. The high of prev n days and low of prev n days parameters, such as HIGHU and LOWU, are based on closing values. For example, HIGHU(10) is the underlyings highest closing price of the previous 10 days, not the highest daily high of the previous 10 days. Only the front 4 months of options are considered, and only strikes within 40% of the price of the underlying. LEAPS are not included in the OpScan database. If your purpose is to search for short term under and overvalued options, you can use the approach illustrated in the formulas: Overvalued (and Undervalued) Options Based on Each Options Own Recent MIV. In these formulas, each option is evaluated based on its own recent volatility level. Your OpScan reports will list the best items discovered in the search. If your report comes back with fewer items than you asked for in the Max Number of Items field, it means that only these items qualified under your Pick formula.

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User's Guide

OpScan Operators and Parameters

OpScan Formulas and Parameters use the following Symbols and Operators:

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Underlying Specific Parameters for OpScan

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Option Specific Parameters for OpScan

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OpScan's Built-in Formulas

As we mentioned earlier, OpScan comes with a dozen formulas built-in: 1. Breakouts to the Downside 2. Breakouts to the Upside 3. Exceptional Put/Call Volume Ratio 4. Fat Call Premiums on Quiet Stocks 5. Fat Put Premiums on Quiet Stocks 6. Futures Markets in Order of Current Volatility 7. Stocks with Historically High Volatility 8. Stocks with Historically Low Volatility 9. Overvalued Options Based on Each Options Own Recent MIV 10. Overvalued Stock Options Within Matrix 11. Undervalued Options based on Each Options Own Recent MIV 12. Undervalued Stock Options Within Matrix 13. Unusual Call Activity You can look at the actual formulas by selecting them from the list and clicking the Modify button. You can also copy these formulas or add a new scan and import one of these using the Built-in button. We will now briefly explain what each of these formulas are designed to do. Breakouts to the Downside (and Upside) These two formulas look for significant price moves today in an underlying asset. They also look for more than simply a big price move. They look for assets that have been trading in a range over the past two weeks and have just broken out of that range today. Both formulas have the same beginning statement in the pick field: HIGHU(10)/LOWU(10) < 1.05 This statement divides the highest closing price by the lowest closing price over the last 10 trading days, and makes sure the result is less than 1.05. This means it includes only assets that have traded in a price range with no more than a 5% difference between the high and low closing prices over the past two weeks. For the Breakouts to the upside formula, the next pick statement then looks for assets whose Last price was at least 2% greater than the highest closing price during the last 10 trading days (LASTU > HIGHU(10)*1.02). For the Breakouts to the downside formula, the next pick statement then looks for assets whose Last price was at least 2% lower than the lowest closing price during the last 10 trading days (LASTU < LOWU(10)*0.98).

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User's Guide The final statement in the pick field of both formulas (LASTU(10)>0) simply checks that the data is good by making sure the Last price it is using to find qualified candidates is greater than zero. The reports then use a mathematical expression in the sort field so that the assets with the greatest percentage price move are at the top of the report. Exceptional Put-Call Volume Ratio The Put/Call ratio is one of the most consistent ways to gauge market sentiment. It measures how many put options are being bought compared to call options. If more people are buying puts than are buying calls, it would indicate bearish market sentiment for that asset. The first part of the pick statement, PVOL$ / CVOL$ > 2.5, means only assets where the put dollar volume is at least 2.5 times the call dollar volume show up on the report. The second part of the pick statement, ATVOL(5)>200, screens out assets that have average daily volume of less than 200 options contracts over the last five days. We use dollar volume rather than contract volume to calculate the ratio in this formula. This prevents trades involving a large number of contracts in way outof-the-money options (at a very small dollar cost) from having too large an effect. Using dollar volume gives a better reading as to what most traders are really doing. To use an old saying, they are putting their money where their mouth is. The report then uses PVOL$ / CVOL$ in the sort field, which causes those assets with the highest put to call ratio to appear at the top of the report. Fat Call (and Put) Premiums on Quiet Stocks These two formulas, one for calls and the other for puts, are designed to look for attractive options to sell. It is run on stocks only, and looks for the implied volatility of the calls (or puts) to be at least 10% greater than the actual volatility (SV) of the stock. This could be used to look for good covered writes, or simply good options to sell naked. This formula also screens out stocks that have an average daily volume over the last five days of less than 200 options contracts. Both formulas mention quiet stocks in the title. The first statement in both pick fields is SV < 30, meaning the SV of the stock is less than 30%. This is low for a stock, and should reduce the risk of getting assigned when selling out-of-themoney options.

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The report is sorted by IV-SV, meaning the stocks with the most expensive options (relative to the SV) will appear at the top of the report.

Futures Markets in Order of Current Volatility

This formula simply lists all the futures assets in the database in order of their implied volatility. Because there may be liquidity problems in some of the futures markets, it also includes the average daily dollar volume of options for the past 10 trading days (ATVOL$(10)) in the show field.

Stocks with Historically High or Low Volatility

This report identifies stocks that are approaching historically high (or low) volatility levels. For historic highs, the term IV>.95*HIV(500) is used and finds stocks whose current IV is within 5% of the highest IV level reached in the last 500 trading days. For historic lows, the term IV<1.05*LIV(500) finds those within 5% of the lowest IV level reached in the last 500 trading days.

Overvalued (Undervalued) Options Based on Each Option's own Recent MIV

These two formulas compare the MIV of an individual option with that same options average MIV over the last five trading days. Overvalued options are defined as having a current MIV more than 20% higher than their recent average MIV over the last 5 days (MIV>1.2*AMIV(5)). Undervalued options are defined as having a current MIV lower than 85% of their recent average MIV over the last 5 days (MIV<.85*AMIV(5)). The pick line for these formulas may seem long but most of it is devoted to screening out unsuitable candidates and bad data. Both formulas screen out assets that have a daily average number of contracts traded less than 200. They then only choose candidates with a market price of $.50 or greater (MKTPR>=.5). Finally, they make sure the data is good by checking that the MIV for the two previous days is greater than zero: (MIV(2)>0, MIV(3)>0). Since at least one of the parameters are option-specific, this report returns a list of individual options. They are then sorted so that the most overvalued (undervalued) options appear at the top of the report.

Overvalued (and Undervalued) Options within Matrix

These two formulas are set to run on stocks only. They compare the MIV of an individual option with the stocks current IV. The overvalued options formula looks for options that have an IV at least 20% greater than the IV of the stock

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User's Guide (MIV > 1.2*IV). The undervalued options formula looks for options that have an IV at least 20% less than the IV of the stock (MIV < .8*IV). Both these formulas also screen out assets that have a daily average number of contracts traded less than 200. Since at least one of the parameters are optionspecific, this report returns a list of individual options. They are then sorted so that the most overvalued (undervalued) options appear at the top of the report.

Unusual Call Activity

This formulas purpose is to catch pending takeover announcements before they happen. Takeovers, buyouts, and important news announcements are often preceded by unusual call activity in the option markets. Rather than simply looking at the volume in a stocks options, a couple of refinements have been incorporated. For example, IV>1.1*AIV(20) was added to the pick statement. Without this statement, the report will be filled with situations characterized by heavy trades (block trades) in just one or two of the options indicating a large position being taken by only one trader or firm. This is not what we want, as it would seem more likely that takeover announcements would be preceded by heavy activity in almost ALL of the stocks call options. This formula really has two goals: To catch every major takeover, and To exclude, as much as possible, items that are not representative of true pretakeover activity, thus minimizing the daily follow-up work. This formula, whose purpose is to screen for assets approaching historical highs or lows in option volatility, is an example of combining two objectives into one.

Additional OpScan Resources

At OptionVue Systems we are always working on different ways to help our customers use the tools we provide more efficiently and profitably. The eInformer newsletter regularly carries articles on OpScan tips, refinements to existing formulas, and on developing new formulas as well. We also offer special educational resources such as videos or CDs from time to time designed to further your knowledge of OpScan. Check with your regional product director for news on the latest products available. 222

Technical Support. If you have questions or a problem with OpScan, technical help is available at (847) 816-6610 from 8:00 A.M. to 5:00 P.M. CST at a reasonable cost. (Please have a credit card available). If you have run a scan and have a problem or a question about the results, we need you to send us a copy of the OpScan report before you call. You can email it to a specific product consultant, or send it to our fax number at (847) 816-6647. In fact, you can even jot down your question on the report itself, and add a phone number where you can be reached within the next couple of hours. The nice thing about this approach is that it gives us time to study the report and do the necessary research before getting on the phone with you.

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Value Sheets
Value Sheets are an important feature that are included with the Professional Edition. They are also available as a separate module for owners of the regular edition. A Value Sheet is a customized array of projected fair values and other parameters at different prices of the underlying which can be printed out. This makes them very valuable to traders who have to be away from their computer for extended periods. A Value Sheet can display all the same numbers as in the Matrix, but brings them together in a way that can make it easier to see relationships and to choose which option to trade. A variety of formats are available. For example, you can have the strikes going across and underlying prices going down, or strikes going down and underlying prices going across. They are designed to be printed out, but you can look at a print preview on your screen:

Value Sheets can help you pick the best option for your purposes and set realistic entry and exit prices. Value Sheets operate like the projected underlying field in the expand window times a hundred, as the theoretical prices for so many scenarios are computed and laid out in one dense information-packed page.

Using the Value Sheets

To enter the Value Sheets area, click the "V" button in the upper right area of the Matrix. The following value sheet dialog will appear:

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Profile Selector

OptionVue is capable of remembering up to four different value sheet designs, or "profiles", per asset. Select profile 1 - 4 here. Using the ellipsis button next to the Profile Selector, you can copy features from a built-in standard profile, or copy one of the your other profiles into the current profile.

Note: The box you see around most of the items on this dialog encompasses all the elements of a "profile". Month Selector. Select the option expiration month you want a value sheet for. Valuation Date. This is the projection date for the analysis (usually today, tomorrow or the next trading day). Center Price, Price Range, and Price Intervals. Use these three fields to indicate the set of underlying prices to be used. An example will serve to illustrate: Suppose stock is currently priced at 65, and you would like your value sheet to cover a range from 60 to 70 in one half point increments. You should enter 65, 10, and 0.5 in these three fields. Strike Range Low and High. Use these two optional fields to indicate the range of strikes you want included in the sheet. For example, your Matrix may have strikes defined from 45 to 90, but if you only want to see strikes 50 through 80, then enter 50 and 80 in these fields. If you leave these fields blank, the sheet will include all defined strikes. Spread Range Low and High. Use these two optional fields to indicate a subrange of strikes for which to display spread parameters (e.g. spread theoretical price, spread delta). If you are not using any spread parameters, these fields are irrelevant. Even if you do use spread parameters, these fields may be left blank, and spread parameters will be shown for all strikes. 225

User's Guide Volty Change. Use this field to project a unilateral volatility shift. For example, if a stock's volatility is 32% currently, and you expect this to increase to 35%, you may enter +3.0% to have the program model the increase. Overall Format. You can select Strikes Across (and underlying prices down) or Strikes Down (and underlying prices across). It is usually best to make whichever you have more of (strikes or underlying prices) go down. Show Decimal Points. Decimal points are usually shown. However, in the interest of simplifying an already dense value sheet, you can elect to have them left out. A number like 3.67 will then be shown as 367, with an "understood" decimal point between the 3 and the 6. Font Size. Choose a smaller font size for a denser printout. Choose a larger font size for a more readable printout. Cell Format. A "cell" is printed at each intersection of strike and underlying price in the value sheet. You can display up to eight parameters per cell. An example 2x4 layout should already be filled in. To change a parameter, click on it and choose a different parameter from the list. If you do not need to see eight parameters per cell, fill unneeded cell locations with (None). Selecting (None) creates a null placeholder in the cell layout. If you select (None) in all the elements of the bottom row(s) or the right column, the size of the printed cell decreases. For example, placing (None) in both positions of the bottom row will cause the value sheets to print using 2x3 cells.

Generating the Value Sheets

Once the inputs are ready click the Print button to send it directly to the printer. Or click the Preview button to see an approximation of what your value sheet will look like. Note that the preview is not meant to be readable, although clicking the second button from the left usually makes it a little more readable. Preview is designed to give you an overall impression of how wide and how deep your table is going to be, and how many pages it will span.

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Under the Hood OptionVue 6 Models

OptionVue 6 uses a number of key mathematical models. Every analysis that the program performs is based on these models. At OptionVue Systems, we feel it is important that the user understands these models as well as their underlying assumptions. Many analysis programs are created through back-testing, often called Black Box programs. Such systems are usually curve fitted, and this type of system is not particularly robust in the long-term. While some have shown good results over time, it seems fair to note the majority have not. OptionVue 6 allows you to see the models being used, and in many cases allows you to make adjustments to fit your individual trading needs. There are six areas to cover: 1. 2. 3. 4. 5. 6. Option Pricing. How option "fair values" are computed. Futures Pricing. How futures "fair values" are computed. Lognormal Price Forecasting. Using the "bell" target. Volatility. How volatility is measured and forecasted. Slippage. How "slippage" is computed. Convertible Security Pricing. How convertible securities "fair values" are computed.

Option Pricing
OptionVues most important model, its cornerstone, is its option pricing model. Actually, OptionVue 6 provides a choice of three option pricing models:

The pure Black/Scholes model The Yates-adjusted Black/Scholes model The Cox/Ross/Rubinstein ("binomial") model

Of all the option pricing models in use today, the Black/Scholes model (and its variations) is by far the most popular. The Black/Scholes model, together with the Cox/Ross/Rubinstein model, probably account for 90% of all computerized options applications.

Pure Black/Scholes Model

The pure Black/Scholes (B/S) model is extremely fast, but is not accurate for valuing American options since it does not account for the possibility of early exercise.

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User's Guide Modern option pricing models are often considered among the most mathematically complex of all applied areas of finance, and they can value an option with amazing accuracy. Most of the models and techniques in use today are rooted in a model developed by Fischer Black and Myron Scholes in 1973. The Black Scholes model relies on a number of assumptions, some of which make this less than optimal for pricing stock options: 1. 2. 3. 4. 5. 6. The stock pays no dividends during the option's life European exercise terms are used Markets are efficient No commissions are charged Interest rates remain constant and known Returns are lognormally distributed

Adjusting the B/S model for early-exercise is relatively easy for calls, but a monumental task for puts. Yet the impact of not adjusting it for early exercise is dearly felt in those puts, which can easily go undervalued by much as 15%. Many stocks do, of course pay dividends. And interest rates are not constant. The Yates model is adjusted to take these factors into account, making it much more accurate for pricing stock options.

Cox/Ross/Rubinstein Model
The Cox/Ross/Rubinstein (C/R/R) model is a binomial model that is extremely accurate, but takes a lot of computing power and is much slower. The OptionVue 6 version of it is optimized for speed. Even so, it can take hundreds of times longer than the B/S model to compute the value of an option. The accuracy increases as the resolution increases, but so does the time needed to do each calculation. The maximum resolution allowed in OptionVue 6 is 250, with the default set to 10. Lines in the Graphic Analysis are "smoothed" when using the Yates model, so when using this model, you will see the lines are noticeably more "choppy". Unlike the Black-Scholes model, which results in an exact theoretical value, the Cox-Ross-Rubenstein model approximates the value of an option by means of an algorithm, or loop. Each time the user makes a pass through the loop, the closer he comes to the true value of the option. In theory, if one goes through the loop enough times, the model eventually will converge to the true value of an American-style option.

The Yates Model

The Yates model was developed in-house at OptionVue Systems International with intensive research and testing. It is a refined Black/Scholes model that takes into account dividends and the possibility of early exercise. 228

When used for American call options, the Yates model is actually nothing more than the so-called pseudo-American call option pricing model. When used for American put options, the Yates model is also based on the pseudo-American model. However, it includes a factor that adjusts for the possibility of earlyexercise, which is Len Yates' unique contribution. The effect of the Yates adjustment is to bend the put valuation curve upward at the left (in-the-money) end just enough to lift it above the "parity" line. The Yates adjustment formula assures that most of the bending occurs in the near-the-money area of the curve, with proportionately less bending as you go farther in or out of the money. Coefficients were optimized to produce minimal error as compared with the C/R/R model at a high resolution (50), using data from a wide variety of situations. The Yates model has the combined benefits of speed and accuracy. The performance impact of the adjustments to the original Black/Scholes is minimal. On average, the model takes 2.2 times longer than the pure Black/Scholes. Still, the model clocks in 50 times faster than the Cox/Ross/Rubinstein model. The Yates model has been thoroughly tested for accuracy. In thousands of test cases spanning a wide variety of dividend, interest rate, and volatility scenarios, answers from the Yates model differed, on average, less than 1% from the C/R/R model at high resolution. Although you may select the Yates model for all assets, the program does not use the actual Yates model in all circumstances. When evaluating European style options, the program is actually using the B/S model. When evaluating futures options, the program is actually using the Black model. For a thorough discussion of option pricing, the reader is referred to these two excellent books:

Options Markets by Cox and Rubinstein. Option Pricing by Jarrow and Rudd.

Futures Pricing
It is frequently necessary to model the price relationships between futures contracts, and between a futures contract and the underlying "spot" market. OptionVue 6 gives you a choice of three futures pricing models for this purpose: The Constant Carry model, the Constant Basis model, and the Variable Basis model. You will want to use the one that is most appropriate for the kind of futures you are modeling.

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Constant Carry
In currency futures, carrying cost is the interest rate differential between the two countries. Otherwise, carrying cost is the cost of holding the underlying actual, except distributions if any. The main component of carrying cost is usually interest charges. The constant carry formula: Future1 = Future2 x ect - F(d) where:

F(d) = the "future value" of distributions paid by the underlying, if any t = time until delivery date c = carrying costs

Future1 or Future2 could alternately represent the spot market. The only variable that you need to be concerned with is c -- carrying costs. All the others are taken care of automatically by the program. If futures prices are filled in on the Matrix, the program even computes carrying costs for you automatically, substituting the carrying cost implied in the futures prices themselves. Note: The "future value" function is the inverse of the "present value" function so familiar to financial analysts. Instead of discounting future cash flow(s) to the present, the future value function enhances future cash flow(s) to a future point in time (today + t).

Constant Basis
The constant basis formula: Future1 - Future2 = a Where a is a constant value that you control. There is a different constant a specifying how each "dependent" futures contract price relates to the independent futures contract price.

Variable Basis
A third futures pricing model is available in OptionVue 6, augmenting the Constant Basis model. (Note that the other existing model - Constant Carry - is still there. The new Variable Basis model does not supplant that model. If the 230

Constant Carry model was best for a particular asset before, it is still the best model for that asset (the Constant Carry model is best for index futures and gold futures, among others.) More sophisticated than the Constant Basis model, the new Variable Basis model measures relative price movements of the various contracts of an asset from a recent price history, and projects those relative movements to continue in the future. For example, if the 2nd contract tends to move .90 whenever the nearby contract moves 1.00, the program will show the 2nd contract's delta to be 90. (Under the Constant Basis model, this would be 100, as all contracts are assumed to move point-for-point under the Constant Basis model.) Likewise all the 2nd contract's options' deltas are scaled by a factor of 0.9. The Variable Basis model gives the user direct control over these deltas, contract by contract, as well as control over currently modeled inter-contract spreads. To select the new Variable Basis model, go into the Model window (from the Matrix) and click Variable Basis in the bottom center area of the window. An ellipsis button next to this choice opens the new Variable Basis dialog window:

The Variable Basis dialog window contains two tables - one for Spread Values and the other for Deltas. Each table contains columns titled "Use" and "Measured". The Measured column holds the numbers OptionVue 6 has derived 231

User's Guide from a recent price history. Measured spread values are simply the differences between yesterday's contract prices. (We use yesterday's prices because it is important to avoid using today's intraday prices, as these might not be reliable.) Measured deltas come from performing a linear regression comparing the front month contract (the one with the greatest volume - always given a delta of 100) and each of the other contracts. There must be at least 10 days of accumulated history, or else the program will simply assign a delta of 100 (as can be seen with the bottom eight contracts above). The program will use up to 90 days worth of price history in computing delta. The Use column is where you can take control over the model, overriding numbers the program would otherwise use automatically. Numbers in the Use column are the numbers the program uses throughout the program in computing futures contract fair values, both for today (in the Matrix) and when projecting into the future (e.g. Graphic Analysis). With the "Copy Measured to Use Every Day" checkbox (under each grid) checked, the program copies all Measured numbers into the Use numbers automatically each day, just once each day (the first time you open the Matrix that day). To copy all Measured values into the Use column immediately, click the "Copy Measured to Use" button. To copy just one Measured value into one Use value, click on one of the Use cells and press CtrlD (ditto). In support of the new Variable Basis model, a new historical price file format was developed. Automatically created and maintained by the program, these files, with extension .HFC (standing for "historical futures contracts"), are kept in the Hist folder. Into one of these files goes a history of all the contracts for a given asset. For example, there will be a file named CL.HFC for Crude Oil. HFC files are updated automatically during a batch update with any data source, or when updating open Matrixes using NetVue. They are not updated during real-time quotes reception with any of the real-time data services. Note that HFC files are only created and maintained for futures-based assets. For best results, it is recommended that a final batch update be performed each day well after the close (say, at least an hour). That way, HFC files are left with settlement prices, rather than intraday prices that may have been stored during the day. Settlement prices are more reliable than intraday prices. Some discussion of Matrix deltas would be in order. Under the Variable Basis model, Matrix deltas change whenever the program determines that a different independent variable would be appropriate. With no positions in the Matrix, the program defaults to making the front month contract (the one with the most volume) the independent variable. This contract will have a delta of 100. All other futures contracts will typically have deltas other than 100, reflecting how those futures move in relation to the front month contract. The options belonging to each contract will have deltas adjusted by the delta of their underlying. 232

If you enter a position in a futures contract other than the front month contract, the Matrix automatically makes that contract the independent variable. As the new independent variable, the delta for that contract changes to 100, and the deltas of all the other futures contracts change to reflect how they would typically move in relation to the new independent variable. Options' deltas update as well. When a position in two or more months is entered, the program makes the nearest contract involved the independent variable. Besides entering positions, there is one other way of controlling the Matrix's independent variable. It is by clicking the header above a futures contract or options contract, changing its color to olive.

Lognormal Price Forecasting and Analysis

Studies have shown that stock price changes are very close to being lognormally distributed over time. This means, for one thing, that the chances of a stock doubling in a period of time are equal to the chances of the stock dropping to half its price during the same period. Which is to say that the chances of a stock rising 5 points are not equal to the chances of the stock dropping 5 points. (That would be a normal distribution.) To our knowledge, no similar studies have been done for asset types other than stocks. However, based on the fact that the options industry in general is applying the Black/Scholes model universally, and the Black/Scholes model is based on the lognormal distribution assumption, the industry is assuming that other asset types behave lognormally as well.

Lognormal Target Analysis

When target price is set to "bell curve", the program constructs a lognormal distribution based on volatility and time until Valuation Date. The distribution is then divided into an equal number of areas under the curve, representing 10 equally-probable asset price regions. Note: The author has not found using higher resolutions to result in significantly better answers, and using a higher resolution slows down program performance.

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User's Guide Lognormal Probability Distribution

Moments (balance points) are then computed for each of the areas. These constitute a set of hypothetical future prices upon which to base the subsequent analysis. Net theoretical profit/loss for your hypothetical investment is computed at each price point and the results are statistically analyzed to determine the mean and standard deviation expected return. We will now illustrate Lognormal Target Price Analysis from start to finish with an example. Suppose we have a ratio write in Wells Fargo (Symbol: WFC): Long 400 shares of common stock and short 12 out-of-the-money call options. Suppose further that Future Date is set to 7 1/2 months hence and that our choice for a target price is a lognormal distribution centered on today's price for Wells Fargo of $30.50. Our forecasting model is first used to construct the imaginary bell curve for Wells Fargo, expressing the probability of its price at 7.5 months hence:

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The area beneath the curve is then divided into 10 equal areas, and the moment for each segment is calculated according to the price that divides the segment into two segments of equal area. These prices are represented by the arrow marks in the following figure:

The 10 resulting prices are: o 21 3/4 o 24 5/8 o 26 1/2 o 28 1/8 o 29 5/8 o 31 3/8 o 33 o 35 1/8 o 37 3/4 o 42 7/8 These prices are a representative sampling of the lognormal distribution for Wells Fargo. Most of them cluster near the current price, but a few of them represent the possible extreme moves the stock price might make. Together they represent the full expression of the lognormal distribution for Wells Fargo (not just to the 1st or 2nd standard deviation). Total theoretical profit and loss (including dividends, commissions, slippage -everything) is then computed for the investment at each of the 10 forecasted underlying security prices. The 10 answers that result are:
o o o o

21 3/4 +$1,144 24 5/8 +$2,291 26 1/2 +$3,038 28 1/8 +$3,687 235

User's Guide
o o o o o o

29 5/8 +$4,285 31 3/8 +$3,284 33 +$1,964 35 1/8 +$241 37 3/4 -$1,887 42 7/8 -$6,043

These answers are then statistically analyzed for

Their Mean (sum divided by 10) Their Standard Deviation (the square root of the sum of the squares of the differences from the mean)

The mean and standard deviation compute to $1,249 and $3,084 in this case, and these would be the numbers that you see posted on the Graphic Analysis window.

Volatility
Perhaps the "purest" method of measuring volatility is statistical analysis of the recent price history of the asset itself. Proponents of statistical analysis claim that theirs is the only way to arrive at the "true" volatility for an asset, and that the use of market implied volatility is circular. While it may be true that statistical analysis is the only way to measure true recent volatility, market implied volatility might be a better indication of future volatility than the statistical method, because it is sensitive to current market perceptions. Options are currently priced to reflect expectations about the future volatility of the underlying asset. These expectations are evident almost instantly when you measure volatility the "implied" way. Forecasting future volatility is a key to options modeling. Implied volatility is, admittedly, somewhat circular. If everyone relied exclusively on implied volatility, the slightest error (i.e. rounding errors) could cause us all to drift further and further from the true volatility of an underlying asset until there was no resemblance between assumed and actual volatilities. Perhaps an occasional look at statistical volatility is important for "staying on course". In any case, forecasting future volatility is a key to options modeling. OptionVue 6 tracks both implied volatility and statistical volatility for every asset for which the user maintains a file, and uses these figures automatically (unless placed in "manual" mode) for the volatility input to the Matrix and all forms of OptionVue 6 analyses. The user has his choice of using statistical or implied volatility, or any proportionate mix of the two. 236

The mechanics of how OptionVue 6 measures and uses volatilities is discussed in the section on Volatility (Modeling).

Statistical Volatility
OptionVues method for computing statistical volatility (SV) is the "extreme value method". Using just daily high and low prices, the extreme value method is roughly five times more precise than the more common "close-to-close" estimator. And the extreme value method has the further advantage of being unaffected by any possibly missing days. You can go away for a week or two, and come back and pick up where you left off. (The SV number might be a little bit "stale", but the formula deals with the gap just fine.) Truthfully, the calculation of SV involves more than just the basic extreme value formula. There is an algorithm involving several steps. These steps represent refinements made over the years. The heart of the algorithm, is this extreme value formula: SV = .627 * sqrt(365.25) * ln( H / L ) where: SV = statistical volatility sqrt = the square root function ln = the natural logarithm function H = the high of the day L = the low of the day This formula gives you the statistical volatility number for one trading day, normalized to a year (all volatility numbers are normalized to one year). The result of using the above formula on each of n trading days is n different SV numbers. These may then be combined by averaging. In OptionVue 6 we use 20 trading days, We use an exponential averaging method to give the most weight to the SV of the most recent trading day, and successively less weight to the other days as you go back in time. Here is the exponential averaging algorithm as used in OptionVue 6. a = 1.0 alpha = 0.92 numer = 0.0 denom = 0.0 For each trading day, do the following three instructions: 1. number = number + (a * daily volatility) 2. denom = denom + a 3. a = a * alpha 237

User's Guide Then the final step is: Average SV = number / denom In this algorithm, a represents the progressively smaller weight, and is used as a multiplier against each daily SV reading. You can see that a starts out at 1.0, and becomes smaller as it is multiplied by 0.92 repeatedly.

Refinements
An inherent weakness of the extreme value method is that opening gaps are ignored. For example, if a stock were to trade in a point range one day (pretty low volatility), then open the next day 5 points higher and trade in a point range once again, this 5-point opening jump would completely escape the notice of the extreme value method, as it only looks at each days high-low range. To compensate for this, and to specifically deal with the Japanese Index (JPN) and others like it (whose range is never reported, but merely a last which jumped from the day before) we developed a system of combining pairs of consecutive trading days into single two-day events before measuring SV. When measuring SV from the high and low of a two-day period, the basic formula becomes: SV = .627 * sqrt(365.25) * ln( H / L ) / sqrt(2) This is the same formula as before, plus a division by the square root of 2. So when analyzing a sequence of daily records, we measure SV from successively overlapping two-day periods, but only if they are two consecutive trading days (this calls for a function which knows about weekends and holidays). When measuring SV from a day for which there is no subsequent trading day information, we apply the single-day formula. One more important thing needs to be discussed to see the whole picture. The reality of real-world data is that it can contain occasional errors or spurious data. Bad data can be as simple as the apparent price drop from a stock split, or the jump that accompanies a roll-over in futures contracts. Or, it can be bad information from a quote vendor. To filter out bad data, we do three things. First each record is checked to make sure it contains both a High and a Low that the High is greater than or equal to the Low. Any record not meeting these conditions is thrown out. Second, we check for individual days of bad high/low prices in context, and throw them out. (e.g. If three consecutive days of high/low prices are: 144/142, 76/73, 142/140, the middle one is obviously bad.) Third, after all the SV numbers are computed, we toss out the highest and the lowest of these, prior to averaging. As a final step we refuse to return an average SV from too few samples. In OptionVue, this number is 5. We must have at least 5 individual SV numbers or 238

else we will return a blank average SV. So, here is an outline of the complete algorithm: 1. Filter out bad records on an individual basis. 2. Filter out bad records in context. 3. Stepping from the oldest record to the earliest, compute SV from a combination of this record and the next, if the two represent consecutive trading days. If this record and the next are not consecutive trading days, compute SV from this day's record alone. 4. We now have a collection of SV readings. See if we have at least a minimum number of these readings. If so, go on; otherwise, do not compute average SV. 5. Toss out the highest and the lowest SV readings. 6. Combine the remaining SV readings using the exponential averaging method described above. As you can see, this is a robust algorithm which is capable of dealing with a wide variety of data, even dirty data. OptionVue is a real rubber meets the road program, and its SV algorithm was designed in keeping with this philosophy.

Implied Volatility
Every option, by virtue of its very price, is making a statement about how volatile its underlying is. The higher the options price, the higher the implied volatility (IV). To understand how IV is computed, you can think of IV as the options pricing model being worked "backwards" to determine volatility, normally one of the key inputs to the formula. In truth, pricing models cannot be worked backwards. IV has to be derived by working the pricing model "forward" repeatedly, experimenting intelligently with different volatilities, until theoretical option price converges with actual market price. IV is computed from all options which meet the following criteria: 1. 2. 3. 4. 5. There has to be a representative Market Price for the option. The option's strike price must be within 80% of the price of the underlying. The option must have 2 or more remaining days of life. The option must have at least 15 cents worth of time premium in it. The option must have an ITM Factor greater than -0.275.

For the definition of ITM factor, see The Variable Volatility Model. Having computed IV from many options, the program averages them and combines these averages in various ways.

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Variable Volatility Model

The Variable Volatility Model was covered in the Modeling section. However, one further point should be addressed. To handle the effect of the passing of time, the program often has to project a hypothetical new volatility curve in between the other volatility curves. For example, let's say our scenario requires that we know the volatility level of the middle month option seven days from now. Furthermore, let's assume that the middle month options and the near month options expire 30 days apart. Here's how it works. The program assumes that the volatility curve for the middle month options will gradually (over 30 days' time) change into the volatility curve of the near month options. For the option a hypothetical curve is projected 7/30ths of the way from the middle month curve to the near month curve. Volatility is read from this curve after computing the X-axis number as usual.

Slippage
All else being equal, thinly traded options have a wider bid/asked gap than heavily traded options. Therefore, you have to "give" more in order to realistically execute a trade in thinly traded options; less in heavily traded ones. This "give" is what we refer to as "slippage". By taking slippage into account in all of its analyses, OptionVue 6 naturally favors investments involving liquid options, while lending some disfavor to (but not ruling out) investments involving illiquid options. It not only models slippage for the prospective opening transaction, but also for the closing transaction within the context of the future scenario you hypothesize. The slippage formula itself is rather complex. It uses volume, price, and time information as inputs. Here is how it was developed and basically how it works. 1. The framework of the slippage model is a formula expressing both a hypothesis and an observation. 2. The hypothesis is that the dollar volume of an option, relative to its being near-the-money can be modeled using the normal (bell-shaped) curve. The observation is that the volume of an option goes up in a definite step when the nearby option expires. A skeleton formula was sketched which expressed these two ideas, and coefficients were introduced at appropriate places in the structure. These coefficients were then optimized, and improvements added to the structure of the formula on a trial and error basis. This optimizes the model for a large collection of sample data covering different assets over time.

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The slippage model is heavily dependent on volume information being entered into the Matrix. If you are not using automatic quotes retrieval, you should manually enter volume information as well as price. Otherwise, with empty volume fields, the slippage model is forced to maximize slippage estimates, which is bound to be overly conservative. Your choice of slippage degree - Large, Moderate, Small, None, or Hit Bid/Ask - affects the liquidity formula only in the final stage, making a proportionate adjustment in the answer.

If medium, the formula output is used as is. If large, the formula output is increased 50%. If small, the formula output is decreased 50%. If none, the formula is not even used; the answer is automatically zero slippage. If Hit Bid/Asked, the program simply assumes you will buy every option at the Quoted Asked price, and sell every option at the quoted Bid price, no matter how many contracts you do.

Convertible Security Pricing

The price relationship between a common stock and its convertible security is defined by the user under the Convertible Securities tab in the Define window, using six inputs: two prices for a base reference and four percentage change figures. For example, when the common price is: 16 5/8 and convertible price is: 29.25: If Common moves: Convertible moves: down 50% -18% down 25% -9% up 25% +11% up 50% +25% The program constructs a stepwise linear function to model the price of a convertible based on the price of the underlying common. Four linear segments can be constructed from the five price points provided. To determine a convertible security price forecast based on a common stock price forecast, the program simply identifies the appropriate line segment and uses an interpolation formula.

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User's Guide

Glossary of Trading Terms

ALL OR NONE (AON) ORDER A type of order that specifies the order can only be activated if the full order will be filled. A term used more in securities markets than futures markets. AMERICAN STYLE OPTION A call or put option contract that can be exercised at any time before the expiration of the contract. ASK, ASKED PRICE This is the price that the trader making the price is willing to sell an option or security for. ASSIGNMENT Notification by The Options Clearing Corporation (OCC) to a clearing member and the writer of an option that an owner of the option has exercised the option and that the terms of settlement must be met. Assignments are made on a random basis by the OCC. The writer of a call option is obligated to sell the underlying asset at the strike price of the call option; the writer of a put option is obligated to buy the underlying at the strike price of the put option. AT PRICE When you enter a prospective trade into a trade parameter in the Matrix, the "At Price" (At.Pr) is automatically computed and displayed. It is the price at which the program expects you can actually execute the trade, taking into account "slippage" and the current Bid/Ask, if available. AT-THE-MONEY (ATM) An at-the-money option is one whose strike price is equal to (or, in practice, very close to) the current price of the underlying. BACK MONTH A back month contract is any exchange-traded derivatives contract for a future period beyond the front month contract. Also called far month.

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BEAR, BEARISH A bear is someone with a pessimistic view on a market or particular asset, e.g. believes that the price will fall. Such views are often described as bearish. BEAR CALL SPREAD In the Trade Finder, a vertical credit spread using calls only. This is a net credit transaction established by selling a call and buying another call at a higher strike price, on the same underlying, in the same expiration. It is a directional trade where the maximum loss = the difference between the strike prices less the credit received, and the maximum profit = the credit received. Requires margin. BEAR PUT SPREAD In the Trade Finder, a vertical debit spread using puts only. A net debit transaction established by selling a put and buying another put at a higher strike price, on the same underlying, in the same expiration. It is a directional trade where the maximum loss = the debit paid, and the maximum profit = the difference between the strike prices less the debit. No margin is required. BETA A prediction of what percentage a position will move in relation to an index. If a position has a BETA of 1, then the position will tend to move in line with the index. If the beta is 0.5 this suggests that a 1% move in the index will cause the position price to move by 0.5%. Beta for individual assets is updated through the BDB. Note: Beta can be misleading and soul not be confused with volatility. It is based on past performance, which is not necessarily a guide to the future. BELL CURVE See NORMAL DISTRIBUTION. BID This is the price that the trader making the price is willing to buy an option or security for. BID-ASK SPREAD The difference between the Bid and Ask prices of a security. The wider (i.e. larger) the spread is, the less liquid the market and the greater the slippage.

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User's Guide BINOMIAL PRICING MODEL Methodology employed in some option pricing models which assumes that the price of the underlying can either rise or fall by a certain amount at each predetermined interval until expiration. See COX-ROSS-RUBINSTEIN. One of the pricing models available in OptionVue 6. BLACK-SCHOLES PRICING MODEL A formula used to compute the value of European-style call and put options invented by Fischer Black and Myron Scholes. One of the pricing models available in OptionVue 6. BROKER The middleman who passes orders from investors to the floor dealers, screen traders, or market makers for execution. BULL, BULLISH A bull is someone with an optimistic view on a market or particular asset, e.g. believes that the price will rise. Such views are often described as bullish. BULL CALL SPREAD In the Trade Finder, a vertical debit spread using calls only. This is a net debit transaction established by buying a call and selling another call at a higher strike price, on the same underlying, in the same expiration. It is a directional trade where the maximum loss = the debit paid, and the maximum profit = the difference between the strike prices, less the debit. No margin is required. BULL PUT SPREAD In the Trade Finder, a vertical credit spread using puts only. This is a net credit transaction established by buying a put and selling another put at a higher strike price, on the same underlying, in the same expiration. It is a directional trade where the maximum loss = the difference between the strike prices, less the credit, and the maximum profit = the credit received. Requires margin. BUTTERFLY SPREAD A strategy involving four contracts of the same type at three different strike prices. A long (short) butterfly involves buying (selling) the lowest strike price, selling (buying) double the quantity at the central strike price, and buying (selling) the highest strike price. All options are on the same underlying, in the same expiration. This is a strategy available in the Trade Finder. 244

BUY WRITE See covered call CALENDER SPREAD The simultaneous purchase and sale of options of the same type, but with different expiration dates. In Trade Finder this would include the strategies: horizontal debit spreads, horizontal credit spreads, diagonal debit spreads, and diagonal credit spreads. CALL This option contract conveys the right to buy a standard quantity of a specified asset at a fixed price per unit (the strike price) for a limited length of time (until expiration). CALL RATIO BACKSPREAD In the Trade Finder strategies, a long backspread using calls only. CANCELED ORDER A buy or sell order that is canceled before it has been executed. In most cases, a limit order can be canceled at any time as long as it has not been executed. (A market order may be canceled if the order is placed after market hours and is then canceled before the market opens the following day). A request for cancel can be made at anytime before execution. COLLAR A collar is a trade that establishes both a maximum profit (the ceiling) and minimum loss (the floor) when holding the underlying asset. The premium received from the sale of the ceiling reduces that due from the purchase of the floor. Strike prices are often chosen at the level at which the premiums net out. An example would be: owning 100 shares of a stock, while simultaneously selling a call, and buying a put. This is a strategy available in the Trade Finder. CLOSING TRANSACTION To sell a previously purchased position or to buy back a previously purchased position, effectively canceling out the position.

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User's Guide COLLATERAL This is the legally required amount of cash or securities deposited with a brokerage to insure that an investor can meet all potential obligations. Collateral (or margin) is required on investments with open-ended loss potential such as writing naked options. COMMISSION This is the charge paid to a broker for transacting the purchase or the sale of stock, options, or any other security. COMMODITY A raw material or primary product used in manufacturing or industrial processing or consumed in its natural form. CONDOR A strategy similar to the butterfly involving 4 contracts of the same type at four different strike prices. A long (short) condor involves buying (selling) the lowest strike price, selling (buying) 2 different central strike prices, and buying (selling) the highest strike price. All contracts are on the same underlying, in the same expiration. This is a strategy available in the Trade Finder. CONTRACT SIZE The number of units of an underlying specified in a contract. In stock options the standard contract size is 100 shares of stock. In futures options the contract size is one futures contract. In index options the contract size is an amount of cash equal to parity times the multiplier. In the case of currency options it varies. COST OF CARRY This is the interest cost of holding an asset for a period of time. It is either the cost of funds to finance the purchase (real cost), or the loss of income because funds are diverted from one investment to another (opportunity cost). COVERED A covered option strategy is an investment in which all short options are completely offset with a position in the underlying or a long option in the same asset. The loss potential with such a strategy is therefore limited.

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COVERED CALL Both long the underlying and short a call. The sale of a call by investors who own the underlying is a common strategy and is used to enhance their return on investment. In the Trade Finder this strategy is short option (covered) using calls only. COVERED COMBO A strategy in which you are long the underlying, short a call, and short a put. Often used by those wishing to own the underlying at a price less than today's price. This strategy is available in the Trade Finder. COX-ROSS-RUBINSTEIN A binomial option-pricing model invented by John Cox, Stephen Ross, and Mark Rubinstein. One of the pricing models available in OptionVue 6. CREDIT The amount you receive for placing a trade. A net inflow of cash into your account as the result of a trade. CYCLE See EXPIRATION CYCLE. DAY ORDER An order to purchase or sell a security, usually at a specified price, that is good for just the trading session on which it is given. It is automatically cancelled on the close of the session if it is not executed. DEBIT The amount you pay for placing a trade. A net outflow of cash from your account as the result of a trade. DELTA Measures the rate of change in an option's theoretical value for a one-unit change in the underlying. Calls have positive Deltas and puts have negative Deltas. In OptionVue 6, Delta for non-futures based options is the dollar amount of gain/loss you should experience if the underlying goes up one point. For futures-based options, Delta represents an equivalent number of futures contracts times 100. 247

User's Guide DELTA NEUTRAL A strategy in which the Delta-adjusted values of the options (plus any position in the underlying) offset one another. In the goals tab of the Trade Finder, you can Ask OptionVue 6 to scale recommended trades to help an existing position become Delta neutral at the current price of the underlying. DIAGONAL CREDIT SPREAD A type of calendar spread. It is a credit transaction where options are purchased in a nearer expiration and options of the same type are sold in a farther expiration, on the same underlying. It is diagonal because the options have different strike prices. A strategy in the Trade Finder. DIAGONAL DEBIT SPREAD Type of calendar spread. It is a debit transaction where options are sold in a nearer expiration and options of the same type are purchased in a farther expiration, on the same underlying. It is diagonal because the options have different strike prices. A strategy in the Trade Finder. DIRECTIONAL TRADE A trade designed to take advantage of an expected movement in price. EARLY EXERCISE A feature of American-style options that allows the owner to exercise an option at any time prior to its expiration date. EQUITY OPTION An option on shares of an individual common stock. Also known as a stock option. EUROPEAN STYLE OPTION An option that can only be exercised on the expiration date of the contract. EXCHANGE TRADED The generic term used to describe futures, options and other derivative instruments that are traded on an organized exchange.

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EXERCISE The act by which the holder of an option takes up his rights to buy or sell the underlying at the strike price. The demand of the owner of a call option that the number of units of the underlying specified in the contract be delivered to him at the specified price. The demand by the owner of a put option contract that the number of units of the underlying asset specified be bought from him at the specified price. EXERCISE PRICE The price at which the owner of a call option contract can buy an underlying asset. The price at which the owner of a put option contract can sell an underlying asset. See STRIKE PRICE. EXPIRATION, EXPIRATION DATE, EXPIRATION MONTH This is the date by which an option contract must be exercised or it becomes void and the holder of the option ceases to have any rights under the contract. All stock and index option contracts expire on the Saturday following the third Friday of the month specified. EXPIRATION CYCLE Traditionally, there were three cycles of expiration dates used in options trading: JANUARY CYCLE (1): January / April / July / October FEBRUARY CYCLE (2): February / May / August / November MARCH CYCLE (3): March / June / September / December Today, equity options expire on a hybrid cycle which involves a total of four option series: the two nearest-term calendar months and the next two months from the traditional cycle to which it has been assigned. FAIR VALUE See THEORETICAL PRICE, THEORETICAL VALUE. FILL When an order has been completely executed, it is described as filled.

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User's Guide FILL OR KILL (FOK) ORDER This means do it now if the option (or stock) is available in the crowd or from the specialist, otherwise kill the order altogether. Similar to an all-or-none (AON) order, except it is "killed" immediately if it cannot be completely executed as soon as it is announced. Unlike an AON order, the FOK order cannot be used as part of a GTC order. FRONT MONTH The first month of those listed by an exchange - this is usually the most actively traded contract, but liquidity will move from this to the second month contract as the front month nears expiration. Also known as the NEAR MONTH. FAR MONTH, FAR TERM See BACK MONTH. FOLLOW-UP ACTION Term used to describe the trades an investor makes subsequent to implementing a strategy. Through these adjustments, the investor transforms one strategy into a different one in response to price changes in the underlying. FUTURE, FUTURES CONTRACT A standardized, exchange-traded agreement specifying a quantity and price of a particular type of commodity (soybeans, gold, oil, etc.) to be purchased or sold at a pre-determined date in the future. On contract date, delivery and physical possession take place unless the contract has been closed out. Futures are also available on various financial products and indexes today. GAMMA Gamma expresses how fast Delta changes with a one-point increase in the price of the underlying. Gamma is positive for all options. If an option has a Delta of 45 and a Gamma of 10, then the option's expected Delta will be 55 if the underlying goes up one point. If we consider Delta to be the velocity of an option, then Gamma is the acceleration. GOOD 'TIL CANCELED (GTC) ORDER A Good 'Till Canceled order is one that is effective until it is either filled by the broker or canceled by the investor. This order will automatically cancel at the option's expiration.

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GREEKS The Greek letters used to describe various measures of the sensitivity of the value of an option with respect to different factors. They include Delta, Gamma, Theta, Rho, and Vega. HISTORIC VOLATILITY A measure of the actual price fluctuations of the underlying over a specific period of time. At OptionVue, we use the term statistical volatility, reserving the word historic to refer to our past historical data for both IV and SV. HORIZONTAL CREDIT SPREAD A type of calendar spread. It is a credit transaction where you buy an option in a nearer expiration month and sell an option of the same type in a farther expiration month, with the same strike price, and in the same underlying asset. This is a strategy available in the Trade Finder. HORIZONTAL DEBIT SPREAD A type of calendar spread. It is a debit transaction where you sell an option in a nearer expiration month and buy an option of the same type in a farther expiration month, with the same strike price, and in the same underlying asset. This is a strategy available in the Trade Finder. IMMEDIATE-OR-CANCEL (IOC) ORDER An option order that gives the trading floor an opportunity to partially or totally execute an order with any remaining balance immediately cancelled. ILLIQUID An illiquid market is one that cannot be easily traded without even relatively small orders tending to have a disproportionate impact on prices. This is usually due to a low volume of transactions and/or a small number of participants. IMPLIED VOLATILITY (IV) This is the volatility that the underlying would need to have for the pricing model to produce the same theoretical option price as the actual option price. The term implied volatility comes from the fact that options imply the volatility of their underlying, just by their price. A computer model starts with the actual market price of an option, and measures IV by working the option fair value model backward, solving for volatility (normally an input) as if it were the unknown.

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User's Guide In actuality, the fair value model cannot be worked backward. OptionVue 6 computes IV by working forward repeatedly through a series of intelligent guesses until the volatility is found which makes the fair value equal to the actual market price of the option. INDEX The compilation of stocks and their prices into a single number. E.g. The S&P 500. INDEX OPTION An option that has an index as the underlying. These are usually cash-settled. IN THE MONEY (ITM) Term used when the strike price of an option is less than the price of the underlying for a call option, or greater than the price of the underlying for a put option. In other words, the option has an intrinsic value greater than zero. INTRINSIC VALUE Amount of any favorable difference between the strike price of an option and the current price of the underlying (i.e., the amount by which it is in-the-money). The intrinsic value of an out-of-the-money option is zero. IRON CONDOR A strategy similar to the butterfly involving two credit spreads, one in calls and the other in puts, requiring four options at four different strike prices. It involves selling a lower strike and buying a higher strike in call options, and simultaneously selling the higher strike and buying a lower strike in the puts. All four contracts are on the same underlying, in the same expiration. This is a strategy available in the Trade Finder. LAST TRADING DAY The last business day prior to the option's expiration during which purchases and sales of options can be made. For equity options, this is generally the third Friday of the expiration month. LEAPS Long-term Equity Anticipation Securities, also known as long-dated options. Calls and puts with expirations as long as 2-5 years. Only about 10% of equities have

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LEAPs. Currently, equity LEAPS have two series at any time, always with January expirations. Some indexes also have LEAPs. LEG Term describing one side of a spread position. LEGGING Term used to describe a risky method of implementing or closing out a spread strategy one side ("leg") at a time. Instead of utilizing a "spread order" to insure that both the written and the purchased options are filled simultaneously, an investor gambles a better deal can be obtained on the price of the spread by implementing it as two separate orders. LEVERAGE A means of increasing return or worth without increasing investment. Using borrowed funds to increase one's investment return, for example buying stocks on margin. Option contracts are leveraged as they provide the prospect of a high return with little investment. The % Double parameter for each option in the Matrix is a measure of leverage. LIMIT ORDER An order placed with a brokerage to buy or sell a predetermined number of contracts (or shares of stock) at a specified price, or better than the specified price. Limit orders also allow an investor to limit the length of time an order can be outstanding before canceled. It can be placed as a day or GTC order. Limit orders typically cost slightly more than market orders but are often better to use, especially with options, because you will always purchase or sell securities at that price or better. LIQUID A liquid market is one in which large deals can be easily traded without the price moving substantially. This is usually due to the involvement of many participants and/or a high volume of transactions. LONG You are long if you have bought more than you have sold in any particular market, commodity, instrument, or contract. Also known as having a long position, you are purchasing a financial asset with the intention of selling it at some time in the future. An asset is purchased long with the expectation of an

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User's Guide increase in its price. Both long OPTION and long underlying are strategies available in the Trade Finder. LONG BACKSPREAD A strategy available in the Trade Finder. It involves selling one option nearer the money and buying two (or more) options of the same type farther out-of-themoney, using the same type, in the same expiration, on the same underlying. Requires margin. LONG OPTION Buying an option. A strategy available in the Trade Finder. See LONG. LONG STRADDLE A strategy available in the Trade Finder. See STRADDLE. LONG STRANGLE A strategy available in the Trade Finder. See STRANGLE. LONG SYNTHETIC A strategy available in the Trade Finder. See SYNTHETIC. LONG UNDERLYING Buying the underlying (i.e. stock). A strategy available in the Trade Finder. See LONG. MARGIN See COLLATERAL. MARK TO MARKET The revaluation of a position at its current market price. MARKET MAKER A trader or institution that plays a leading role in a market by being prepared to quote a two way price (Bid and Ask) on request - or constantly in the case of some screen based markets - during normal market hours.

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MARKET ORDER Sometimes referred to as an unrestricted order. It's an order to buy or sell a security immediately at the best available current price. A market order is the only order that guarantees execution. It should be used with caution in placing option trades, because you can end up paying a lot more than you anticipated. MARKET PRICE A combination of the Bid, Ask, and Last prices into a single representative price. In OptionVue 6, when the Bid, Ask, and Last are all available, the default formula for MARKET PRICE is (10*Bid + 10*Ask + Last) / 21. MARKET-NOT-HELD ORDER A type of market order that allows the investor to give discretion regarding the price and/or time at which a trade is executed. MARKET-ON-CLOSE (MOC) ORDER A type of order, which requires that an order be executed at or near the close of a trading day on the day the order is entered. A MOC order, which can be considered a type of day order, cannot be used as part of a GTC order. MID IMPLIED VOLATILITY (MIV) Implied volatility computed based on the mid-point between the Bid and Ask prices. See IMPLIED VOLATILITY. NAKED An investment in which options sold short are not matched with a long position in either the underlying or another option of the same type that expires at the same time or later than the options sold. The loss potential of naked strategies can be virtually unlimited. NEAR TERM See FRONT MONTH. NORMAL DISTRIBUTION A statistical distribution where observations are evenly distributed around the mean. OptionVue 6 uses a lognormal distribution. Studies have shown that stock prices are very close to being log normally distributed over time. When you

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User's Guide choose bell curve as a price target in the program, a lognormal distribution based on price, volatility, and time until valuation date is constructed. NOT-HELD ORDER An order that gives a broker discretion as to the price and timing in executing the best possible trade. By placing this order, a customer agrees to not hold the broker responsible if the best deal is not obtained. OFFER See ASK. ONE-CANCELS-THE-OTHER (OCO) ORDER Type of order which treats two or more option orders as a package, whereby the execution of any one of the orders causes all the orders to be reduced by the same amount. Can be placed as a day or GTC order. OPEN INTEREST The cumulative total of all option contracts of a particular series sold, but not yet repurchased or exercised. OPEN ORDER An Order that has been placed with the broker, but not yet executed or canceled. OPENING TRANSACTION An addition to, or creation of, a trading position. OUT-OF-THE-MONEY (OTM) An out of the money option is one whose strike price is unfavorable in comparison to the current price of the underlying. This means when the strike price of a call is greater than the price of the underlying, or the strike price of a put is less than the price of the underlying. An out-of-the-money option has no intrinsic value, only time value. OPTION CHAIN A list of the options available for a given underlying.

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PREMIUM This is the price of an option contract. PUT This option contract conveys the right to sell a standard quantity of a specified asset at a fixed price per unit (the strike price) for a limited length of time (until expiration). PUT/CALL RATIO This ratio is used by many as a leading indicator. It is computed by dividing the 4day average of total put VOLUME by the 4-day average of total call VOLUME. PUT RATIO BACKSPREAD In the Trade Finder, a long backspread using puts only. REALIZED GAINS AND LOSSES The profit or losses received or paid when a closing transaction is made and matched together with an opening transaction. REVERSAL A short position in the underlying protected by a synthetic long. This strategy is not available in the Trade Finder, but can be constructed and analyzed in the Matrix. RHO The change in the value of an option with respect to a unit change in the risk-free rate. This parameter is available only in the Professional Edition. RISK-FREE RATE The term used to describe the prevailing rate of interest for securities issued by the government of the country of the currency concerned. It is used in the pricing models. OptionVue automatically updates the US treasury rates through NetVue. You can override these settings under View | System Models. ROLLOVER Moving a position from one expiration date to another further into the future. As the front month approaches expiration, traders wishing to maintain their positions 257

User's Guide will often move them to the next contract month. This is accomplished by a simultaneous sale of one and purchase of the other. ROUND TURN When an option contract is bought and then sold (or sold and then bought). The second trade cancels the first, leaving only a profit or loss. This process is referred to as a round turn. Brokerage charges are usually quoted on this basis. SHORT An obligation to purchase an asset at some time in the future. You are short if you have sold more than you have bought in any particular market, commodity, instrument, or contract. Also known as having a short position. An asset is sold short with the expectation of a decline in its price. Can have almost unlimited risk. Short option (covered), short option (naked), and short underlying are strategies available in the Trade Finder. Uncovered short positions require margin. SHORT BACKSPREAD A strategy available in the Trade Finder. It involves buying one option nearer the money and selling two (or more) options of the same type farther out-of-themoney, with the same expiration, on the same underlying. Requires margin. SHORT OPTION (COVERED) A strategy available in the Trade Finder. See COVERED CALL. SHORT OPTION (NAKED) Selling an option you don't own. A strategy available in the Trade Finder. See SHORT. SHORT STRADDLE A strategy available in the Trade Finder. See STRADDLE. SHORT STRANGLE A strategy available in the Trade Finder. See STRANGLE. SHORT SYNTHETIC A strategy available in the Trade Finder. See SYNTHETIC.

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SHORT UNDERLYING Selling an asset you don't own. A strategy available in the Trade Finder. See SHORT. SLIPPAGE Thinly traded options have a wider Bid-Ask spread than heavily traded options. Therefore, you have to "give" more in order to execute a trade in thinly traded options; less in heavily traded ones. This "give" is what we refer to as slippage. The OptionVue slippage model is a sophisticated formula that takes into account the volume of your prospective trade in relation to the average daily volume in the option. You can choose five different degrees of slippage; large, moderate, small, none, or Hit Bid/Ask. Adjustments should be made base on your trading experience. SPREAD A trading strategy involving two or more legs, the incorporation of one or more of which is designed to reduce the risk involved in the others. SPREAD ORDER This is an order for the simultaneous purchase and sale of two (or more) options of the same type on the same underlying. If placed with a limit, the two options must be filled for a specified price difference, or better. It can be critical in this type of order to specify whether it is an opening transaction or a closing transaction. STANDARD DEVIATION The square root of the mean of the squares of the deviations of each member of a population (in simple terms, a group of prices) from their mean. In a normal distribution (or bell curve), one standard deviation encompasses 68% of all possible outcomes. STATISTICAL VOLATILITY (SV) Measures the magnitude of the asset's recent price swings on a percentage basis. It can be measured using any recent sample period. OptionVue defaults to 20 days. Regardless of the length of the sample period, SV is always normalized to represent a one-year, single standard deviation price move of the underlying. Note: It is important to remember that what is needed for accurate options pricing is near-term future volatility, which is something that nobody knows for sure.

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User's Guide STOP ORDER "Stop-Loss" and "Stop-Limit" orders placed on options are activated when there is a trade at that price only on the specific exchange on which the order is located. They are orders to trade when its price falls to a particular point, often used to limit an investor's losses. It's an especially good idea to use a stop order if you will be unable to watch your positions for an extended period. STRADDLE A strategy involving the purchase (or sale) of both call and put options with the same strike price, same expiration, and on the same underlying. Both long and short straddles are strategies in the Trade Finder. A short straddle means that both the call and put are sold short, for a credit. A long straddle means that both the call and put are bought long, for a debit. STRANGLE A strategy involving the purchase or sale of both call and put options with different strike prices - normally of equal, but opposite, Deltas. The options share the same expiration and the same underlying. A strangle is usually a position in out-of-the-money options. Both long and short strangles are strategies in the Trade Finder. A short strangle means that both the calls and puts are sold short, for a credit. A long strangle means both the calls and puts are bought long, for a debit. STRATEGY, STRATEGIES An option strategy is any one of a variety of option investments. It involves the combination of the underlying and/or options at the same time to create the desired investment portfolio and risk. STRIKE PRICE The price at which the holder of an option has the right to buy or sell the underlying. This is a fixed price per unit and is specified in the option contract. Also known as striking price or exercise price. SYNTHETIC A strategy that uses options to mimic the underlying asset. Both long and short synthetics are strategies in the Trade Finder. The long synthetic combines a long call and a short put to mimic a long position in the underlying. The short synthetic combines a short call and a long put to mimic a short position in the underlying. In both cases, both the call and put have the same strike price, the same expiration, and are on the same underlying. 260

TECHNICAL ANALYSIS Method of predicting future price movements based on historical market data such as (among others) the prices themselves, trading volume, open interest, the relation of advancing issues to declining issues, and short selling volume. While OptionVue 6 is not a technical analysis program, it does offer many of the most popular technical indicator in its Price Charts. THEORETICAL VALUE, THEORETICAL PRICE This is the mathematically calculated value of an option. It is determined by (1) the strike price of the option, (2) the current price of the underlying, (3) the amount of time until expiration, (4) the volatility of the underlying, and (5) the current interest rate. OptionVue 6 has a theoretical price (Th.Pr) for each option in the Matrix. THETA The sensitivity of the value of an option with respect to the time remaining to expiration. It is the daily drop in dollar value of an option due to the effect of time alone. Theta is dollars lost per day, per contract. Negative Theta signifies a long option position (or a debit spread); positive Theta signifies a short option position (or a credit spread). TICK The smallest unit price change allowed in trading a specific security. This varies by security, and can also be dependent on the current price of the security. TIME DECAY Term used to describe how the theoretical value of an option "erodes" or reduces with the passage of time. Time decay is quantified by Theta. TIME SPREAD See CALENDER SPREAD. TIME PREMIUM Also known as "Time Value", this is the amount that the value of an option exceeds its intrinsic value and is a parameter in the Matrix. It reflects the statistical possibility that an option will reach expiration with intrinsic value rather than finishing at zero dollars. If an option is out-of-the-money then its entire value consists of time premium.

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User's Guide TRADE HALT A temporary suspension of trading in a particular issue due to an order imbalance, or in anticipation of a major news announcement. An industry-wide trading halt can occur if the Dow Jones Industrial Average falls below parameters set by the New York Stock Exchange. TRADING PIT A specific location on the trading floor of an exchange designated for the trading of a specific option class, futures contract, or stock. TRANSACTION COSTS All charges associated with executing a trade and maintaining a position, including brokerage commissions, fees for exercise and/or assignment, and margin interest. TRUE DELTA, TRUE GAMMA More accurate than standard Delta and Gamma. Projects a change in volatility when projecting a change in price. Taking this volatility shift into account gives a more accurate representation of the true behavior of the option. TYPE The type of option. The classification of an option contract as either a call or put. UNCOVERED A short option position that is not fully collateralized if notification of assignment is received. See also NAKED. UNDERLYING This is the asset specified in an option contract that is transferred when the option contract is exercised, unless cash-settled. With cash-settled options, only cash changes hands, based on the current price of the underlying. UNREALIZED GAIN OR LOSS The difference between the original cost of an open position and its current market price. Once the position is closed, it becomes a realized gain or loss.

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VEGA A measure of the sensitivity of the value of an option at a particular point in time to changes in volatility. Also known as "Kappa" and "Lambda". In OptionVue 6, Vega is the dollar amount of gain or loss you should theoretically experience if implied volatility goes up one percentage point. VERTICAL CREDIT SPREAD A strategy available in the Trade Finder. The purchase and sale for a net credit of two options of the same type but different strike prices. They must have the same expiration, and be on the same underlying. See also BULL put spread and BEAR call spread. VERTICAL DEBIT SPREAD A strategy available in the Trade Finder. The purchase and sale for a net debit of two options of the same type but different strike prices. They must have the same expiration, and be on the same underlying. See also BULL call spread and BEAR put spread. VOLATILITY Volatility is a measure of the amount by which an asset has fluctuated, or is expected to fluctuate, in a given period of time. Assets with greater volatility exhibit wider price swings and their options are higher in price than less volatile assets. Volatility is not equivalent to BETA. VOLATILITY TRADE A trade designed to take advantage of an expected change in volatility. VOLUME The quantity of trading in a market or security. It can be measured by dollars or units traded (i.e. number of contracts for options, or number of shares for stocks). WASH SALE When an investor repurchases an asset within 30 days of the sale date and reports the original sale as a tax loss. The Internal Revenue Service prohibits wash sales since no change in ownership takes place.

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User's Guide WRITE, WRITER To sell an option that is not owned through an opening sale transaction. While this position remains open, the writer is obligated to fulfill the terms of that option contract if the option is assigned. An investor who sells an option is called the writer, regardless of whether the option is covered or uncovered. YATES MODEL The Yates pricing model is a refined version of the Black-Scholes pricing model that takes into account dividends and the possibility of early exercise. This model is unique to OptionVue 6.

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