In this lesson we’ll show you how standard deviations can be plotted on a TWS Chart for eligible securities using the estimated price range parameter.
Standard deviation is a statistical term that provides an indication of volatility on how widely the
underlying price of a security will vary over a certain time period. Investors use standard deviation as an
indicator of volatility and risk – the wider the range, the greater the risk.
For contracts with options, the Estimated Price Range graphically illustrates for a security one, two or
three standard deviations. This range is calculated based on the current price, the implied volatility of
the option, and the distance in time from “now.”
Standard Deviations can be plotted on a TWS Chart for eligible securities by selecting the Estimated
Price Range field in the Chart Parameters window to specify the standard deviation to plot. In the chart
this range is graphically represented with a blue shaded cone to display the estimated range over time.
Once activated, to view the Estimated Price Range in the chart, click and drag the small margin arrow at
the bottom right of the price axis to the left to expose the blue Estimated Price Range graphic.
You can also view the blue Estimated Price Range graphic in the Strategy Lab tool where you can
evaluate multiple complex option strategies tailored to suit your forecast. The IB Strategy Lab can be
located under the blue New Window button from the Options Analysis tree.
Analyze the Price Target – The Price Target chart shows the current underlying price highlighted in
yellow, and the target price based on your forecast in red. The blue shaded area represents the
estimated price range to one standard deviation. Users may depress the left mouse button to drag the
dotted expiration line left towards the current date. The upper and lower dashed horizontal lines
displaying the standard deviation reading compress. This illustrates the value of the standard deviation
associated with the reduced number of days.
When comparing strategies generated by the IB Strategy Lab, the Strategy Performance Comparison
window will contrast up to three strategies, overlaid on a blue 3 standard deviation cone.
Remember also that, when looking at option quotes displayed elsewhere in Mosaic, users may see the
associated standard deviation of an option by hovering the mouse above the strike price.
Disclosure: Interactive Brokers
The analysis in this material is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IBKR to buy, sell or hold such investments. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
Supporting documentation for any claims and statistical information will be provided upon request.
Any stock, options or futures symbols displayed are for illustrative purposes only and are not intended to portray recommendations.
Disclosure: Options Trading
Options involve risk and are not suitable for all investors. For more information read the “Characteristics and Risks of Standardized Options” also known as the options disclosure document (ODD). To receive a copy of the ODD call 312-542-6901 or click here. Multiple leg strategies, including spreads, will incur multiple commission charges.