FIGURE 2: Which vol calculation mode should you use? On your thinkorswim platform, from Application
Settings, you can opt to use one of three vol calculation modes. Source: thinkorswim® from TD Ameritrade. For illustrative
FIGURE 3: Chart sharing on Mobile Trader.
Source: thinkorswim® from TD Ameritrade. For illustrative purposes only.
Once you have an idea of which stocks
are influencing an index, you can compare
how the stock is moving relative to its
index. One way is to use the comparison
feature in the Charts tab of thinkorswim.
Overlaying the index chart on a stock chart
can help you identify if the stock is under-performing or outperforming an index.
This information can play a role in your
decision to trade an index or stock that
drives an index. Consider this a starting
step, and perhaps add other factors, such as
implied volatilities, that might help drive
I T’S ALL IN THE VOL:
CHOOSE YOUR DEFAULT VOLATILI T Y
There’s no such thing as certainty in the
options world. Implied volatilities (IVs)
are independent from one options cycle to
another. Changing IVs, different price models (e.g., Black-Scholes), and time decay can
change the P&L of your trades. So it’s a good
idea to spend time analyzing potential trades
and figuring out how different volatility
calculations affect them.
On the thinkorswim® platform from
TD Ameritrade you have a few choices for
volatility calculation modes. The platform
defaults to “individual implied volatility,”
but there are two other modes: “volatility
smile approximation” and “fixed volatility
per expiration date.”
From the Setup menu in the top right of
thinkorswim (gear icon), select “Application
Settings …” and you’ll see a screen that looks
like the one in Figure 2.
1 – Select the General tab
2 – Choose Calculations from the menu
3 – From there, you can select the
Volatility calculation mode you wish to apply to
your trading strategy analysis, particularly
to see how the greeks (delta, gamma,
theta, vega) change
Individual implied volatility uses a distinct
implied volatility for each strike.
Volatility smile approximation accounts
for skew in the out-of-the-money strikes,
which tend to have inflated IVs.
Fixed volatility per expiration date shows
theoretical prices if all options of
a series were at the same vol level as the
In the end, 99% of what you need is in the
default volatility settings. But if you like to
geek out with this stuff, and you feel your
volatility settings are leading you astray, it
might be worth playing around with this
feature. One model isn’t necessarily more
accurate than another. These are theoretical
settings that can be helpful when analyzing
CHAR T SHARING ON MOBILE TRADER
You can step away from your desk, but you
don’t have to step away from your trading.
Anytime, anywhere, fire up your
Mobile Trader app and look to see what’s
happening in the markets. As you casually
glance through the charts of the symbols
on your watch list, you may come across
one that has the perfect setup you’ve been
waiting for. You’ve just got to share it!
To share a chart (see Figure 3):
1 – Select Quotes from the bottom menu
2 – Select a stock symbol from your
3 – Select Chart from the upper menu
4 – Select Share, then follow the steps
you’d normally take to email or share on
social media from your phone