Trades window

This window displays two "data grids". The upper grid records the transaction history of your option position; each dated transaction represents a stock trade, option trade, option expiration or exercise, or price quotation. The lower grid shows the net current position after all the transactions have been executed.

Recording transactions

The fastest way to enter a transaction, particularly if you're just experimenting with positions to see how they look, is to use the Quick trade feature of the Chains window.

Alternatively, you can enter or edit transactions in detail from the Trades window. Either use the Transaction menu to enter a transaction, or double-click any row of the transaction grid (upper grid in the Trades window). Double-click an existing transaction to change it; double-click the empty row after the last transaction to add a new one. Transactions are created or edited in this pop-up dialog window:

If you have loaded an option chain, the available puts or calls will be listed as illustrated here. Otherwise you must enter an Expiration and Strike price in the two input boxes above the (empty) Option chain list.

The fields of this window should be filled out in the following order, because certain entries will not be visible until others have been filled. You can use the keyboard [Tab] key to move through the fields in order:

Note that even if an entry is provided automatically, for example the best bid price, you can change it manually. In particular, you can enter the prices at which your trades were actually executed, if they are different from the Chain prices.

When the entries are complete, choose Save to store the transaction. Cancel discards your entries. Delete removes an existing transaction. You can edit the transaction again by double-clicking its row in the transaction grid.

Transaction types

Quote transaction

You can specify the price of any asset on a given date by recording a Quote transaction for that stock, index or option. Usually you don't need to do this, since new quotes are extracted each time you download a new option chain.

Buy and Sell transactions

You can buy or sell shares of stock, or option contracts. When you buy, the specified number of units of the asset are added to your position. When you sell, the specified number of units are subtracted from your position. If you sell more shares or contracts than you own, the position becomes net "short". If you buy more shares than you are short, the position becomes net "long".

Expire transaction

If you have an ongoing option position in which some options expire, you must tell Options Laboratory what happened at expiration: did the options expire worthless, or were they exercised? The Expire transaction specifies that the number of contracts specified by Units in the transaction expired worthless.

Exercise transaction

On the other hand, options might have been exercised. In that case they must be "settled". Index options are settled in cash when exercised; the settlement value is the difference between the index price at exercise, and the strike price. Stock options are settled by delivering shares; if you wrote a call at $50 and the stock is $55 when the call expires, you deliver the shares and receive $50 per share.

In either case, Options Laboratory needs to know how many contracts were exercised. In this transaction only, the Cash flow field should be set to the value of the shares exchanged, and the program will decrease the share balance by that many shares (or increase it if shares were received in the course of exercise).

For an index option, Cash flow should be set to the amount of the cash settlement, so the program knows how much cash changed hands and can debit or credit your net cash balance correctly.

Net current position after executing transactions

In the Trades window, each row of the net position summary shows one component of your option combination: the stock, long or short if you have any; and a row for each open option in the combination. The cash line shows the net dollar flow, and Net current value is total valuation of the entire combined position, including cash.

Units and Value

The lower grid shows the net open position after executing all the trades. When the Units entry is negative, that indicates a short stock position or an option you wrote. A negative value indicates a liability, so the screen illustration above shows an option position at a net current loss.

Price on

The Price on entry gives the date of the most recent known price for the asset, which was used to figure its Value. Generally this will be the date of the most recent option chain retrieval, but it is possible to use Options Laboratory entirely in a manual mode, without on-line prices. In that case the only price information available is from the dated transactions, and the Price on entry reflects the date of the last transaction on each asset.

Cost

You need to use a little care when interpreting the Cost column. When you buy an option (or stock for that matter), the purchase outlay shows up as cost. But what this column really represents is the net outlay on the open position in the asset.

For example, say you bought 1000 shares for $10,000, then sold 500 shares for $7,000. The remaining 500 shares will show a "cost" of $10,000 - $7,000 = $3,000. That is to say, the cost reported is not the "tax cost basis" of those remaining shares, which was $100 per share; rather, it is the running balance of "cash at risk" invested the asset after any sequence of trades. This is true whether the asset is stock or an option.

Days

This column reports the number of days remaining until the option expires.

Fair val

The "fair value" of an option is its theoretical value computed by the Black-Scholes option formula, based on:

Delta

This value is the Black-Scholes "delta". It is the rate at which the option price changes for a small, immediate change in stock price. For example, when a call option's delta is 0.500, the option price will go up 5 cents when the stock price rises 10 cents.

Decay

All options lose value as time passes. The value reported by Options Laboratory is Black-Scholes "theta", the number of dollars per day lost per optioned share. For example, a Decay of  -0.139 means each option loses almost fourteen cents per day, or $14.00 per day for one option contract (since standard contracts are for options on 100 shares).

Net current value

When Options Laboratory computes the current value of a position, it is figuring out how much you'd make if you closed the entire position right now. When the option chain includes both a Bid and Ask quote, the program will choose the bid price to sell an option you own, and the ask price to cover an option you wrote. If only a "last trade" quote is available, no bid/ask, that price is used instead.

If you look at the screen illustration at the top of this page, you'll see that the Net current value is negative. Why does the position show a loss of $15 as soon as it's opened? This is due to a $15 loss on covering the call option. You can't buy it back for the same price you received when writing it.