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Duration: 4:50

Instructor:

Contributor: Interactive Brokers

Level: Advanced

This lesson will explore the Performance Profile window for options. Investors may use the Performance Profile window to examine the P&L potential for simple or complex option strategies while considering trades, as well as monitor existing positions from the portfolio window.

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Study Notes:

Investors may use the Performance Profile window to examine the P&L potential for simple or complex
option strategies while considering trades, as well as monitor existing positions from the portfolio
window.

To create a position in Mosaic to review, locate the Strategy Builder from the blue New Window menu.
Use the option selector to add legs for a combination or just a single leg for a simple position. Right
below the option chain, you’ll see the legs appear in the Strategy Builder. Click the plus-sign by the
Profile button to view Quote Details, Performance Graph and Risk Scenarios. The combo is always
shown in the title area.

The Performance Graph displays the profit and loss profile for the trade at the time of expiration. The
user can view the P&L impact of the trade on a date other than expiration by using the date dropdown
menu and selecting a different date.

The Performance Graph may also be configured to display any of the Greek values using the dropdown
menu on the left. For example, by selecting Delta and sticking with the expiration date, you can see the
position exposure at any given price for the underlying. Change the date to see exposure ahead of
expiration.

Note that the Scenario window below will populate with data to reflect P&L for the option position for
movements in the value of the underlying share price ranging from + to – 30%. The range may be driven
by the %move pull down menu. Select any of the Greek values and adjust the scenario date in the title
area to see additional measures of risk.

Click Clear All Legs to start over or just click the red “x” to remove a leg. Click Close Profile to close the
Performance Graph. You can add this combo to your Watchlist or edit the values below in the Order
Entry section to create an order. You’ll see the Margin Impact value change as input variables are
adjusted.

Users can make changes in the Strategy Builder area that will cause the Performance Profile to update
automatically. For example, click the advanced button and select add a stock leg to the order. The
Performance graph will dynamically update, or you can click on the green arrows above the title bar.
The Quote Details panel to the left displays some valuable information below the live quote. The
Probability of a Profit is calculated using the live price profile of the options market in relation to the
price of the underlying. For an out-the-money vertical call spread, the stated percentage Profit
Probability is the chance that the underlying will land above the lower strike price at expiration. The
percentage chance displayed for the Max Return is again based upon live options premiums, but shows
the chance the underlying will settle above the upper strike price, where the combination would result
in the maximum return. The percentage displayed for the Max Loss is the option market’s current
estimate (again using live premiums) that the underlying will remain below the lower strike price at
expiration.

Note that the dollar values displayed for Max Return and Max Loss sum to the distance between the two
strike prices. For a $5-wide call spread, the amounts sum to $500. Dividing the Max Return by the value
for the Max Loss calculates the Return/Risk displayed at the top of the Performance metric list.
The Minimum Investment is also displayed in the Quote Details display.

The Break Even quickly enables the user to understand how far the underlying would need to move in
order to prevent a loss associated with the trade. Note that this metric does not include any
commissions paid.

Finally, the Margin Impact is displayed and shows how your margin requirement is expected to change
should the submitted order execute.

Users should consider the Performance Metrics in the Quote Panel when comparing different strategies
to trade.

Users may also view the Performance Profile of established single or multi-legged positions held in their
portfolios. Locate the option trade in the Portfolio monitor and with a right-click of the mouse, select
Performance Profile from the Analytical Tools menu. Once again remember to use the %move scenario,
date dropdown menu and Greek selector to review performance under different scenarios.

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.

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