How Options Laboratory™ is organized

Options Laboratory Strategist presents itself as a single screen that can display five different views: the Chain window, the Volatility window, the Strategies window, the Trades window and the Graphs window. In addition, the Browser window displays an embedded copy of Microsoft Internet Explorer® for your convenience in downloading option price data.

Usually you will work through the program in this order:

Remember that what you're seeing is a mathematical model or projection. Always assess the projection critically before making a trade. Do you believe what the program is telling you? In particular, test how sensitive the projected outcome is to changes the volatility estimate. 

Here is a picture of the Chain window just after downloading an option chain for IBM.

The speed buttons

The speed buttons are the little icons below the main menu, labeled new, open, save, chain, strats and so on.

File operations

The new button is used to clear out the data entries and start over. Use save to save a copy of your work after you develop an analysis, or when using the program to track your open positions from day to day.

Click the open button to retrieve a previously saved option position file. When you open a previously saved file, Options Laboratory will try to find the most recent option chain data for the corresponding ticker. If it has a previously downloaded chain, that chain will be reloaded.

The File main menu has choices corresponding to the new, open and save speed buttons, and a Save as choice you can use to specify a new name for an existing file.

Changing views (windows)

Click the chain, strats trades or graphs buttons to change which window is displayed.

Printing

Click the preview button to prepare a report of the current position. The report is prepared in HTML (web browser) format and the embedded web browser is launched on it. After previewing, you can print it from the browser like any other web document.

Web and Help

The web button lets you quickly point your Internet browser at a few useful web sites such as the CBOE web, Yahoo! Finance, and Mantic Software's home page. This menu also has a choice for re-displaying the most recently prepared printed report.

help brings up this user manual.

Environment panel

The "Environment panel" located just under the speed buttons is always visible, regardless of which window is shown in the bottom region of the program screen. Changes made in this panel affect all three windows simultaneously. The Environment settings are global assumptions or parameters governing the program's mathematical option model.

Ticker, stock or index

The Ticker symbol identifies the underlying stock or index and is used to retrieve the option chain. You can look up tickers at the Chicago Board Options Exchange web site. You should also click the Stock or Index button, because this affects certain aspects of the option mathematics such as what happens when an option is exercised (index options are settled in cash; stock options are settled by delivering shares.)

Options Laboratory™ uses the ticker AHSO for working with examples. This is not a real stock ticker; the program can generate simulated data for experimenting and teaching purposes.

Option chain

Several buttons and information items in the Environment panel relate to the current option price chain, including a button to get the latest available chain from the CBOE web site. These controls are explained in more detail in the Chain window discussion.

Date and price

These boxes are for recording the current date and the price of the underlying stock or index. You can enter them manually, but they are set from the downloaded data when you fetch an option chain.

If you save an option position after getting it all set up, the date and price are stored in that data file. When you open it on a later date, the information will reflect the last use of the data file until you update it by fetching a chain or entering information manually. This information is displayed in blue letters in the Environment panel, as illustrated above.

Volatility

This input box reflects your expectation of the underlying good's price volatility. Examine the volatility scatter plot to determine whether you accept the program's estimate, which it makes from the nearby options in the option chain. You might wish to adjust the estimate based on the scatter plot data.

Using your mouse to drag the horizontal slider will also change the volatility setting.

Risk-free interest rate and annual dividend rate

Stock and index option prices are not very sensitive to the interest rate. If you simply enter the current money market fund yield, that will be good enough. If the stock or index has a substantial dividend yield, you can get more accurate option price calculations by recording the annual dividend yield as a percentage of the stock price. For example, a $100 stock that pays $2.00 per year (50 cents a quarter) has a 2% dividend yield.

Option position files

An option position (any sequence of option trades on one or more dates, for a single underlying stock or index) is stored in one data file. Normally they are stored in the My Documents\Manticsoft\Optlab\ folder with a ".LAB" file suffix or extension.

So if you buy 500 shares of IBM and write 5 calls against those shares, that combined position would be modeled and saved in a one data file, which you might name IBM-covered-call.LAB. When you subsequently buy back three of the calls, that additional action will be added to the same data file - it's just another trade on a later date, which is part of the net position. You can record as many trades as you want in a single file, so long as they all relate to the same underlying stock or index..

Of course, you can have as many different data files as necessary to track all the positions you're following.

To update a previously saved position (for example, a combination you opened last week and are now tracking), you would proceed like this: