P.O.P.'s users fall into four general categories.
Day Traders
Position Managers
Brokerage Desks
Banks and Clearing Houses
Position Managers
Position traders typically use P.O.P. to analyze the options volatility market
and to profile potential trades. Generally, they will:
Imply volatilities and skews from market prices that are downloaded at no cost from
the Internet.
Use interactive graphs to identify the risk of a trade with respect to
changes in time and volatility.
Analyze options on-screen and see the option values change along with
movement in the price of the underlying.
Brokerage Desks
Without a doubt, P.O.P. adds value to any options brokerage business.
When managing a desk that trades options, it is mandatory
these days to have an options analysis system. There is no other way to
provide volatility information to clients. Desk brokers need correct option
deltas without hassle or complicated setups. With P.O.P. you just enter the
current futures price, strike price, and option price (premium), and P.O.P.
instantly displays the delta, theta, vega, and gamma. Analyzing spreads such
as straddles, strangles, and ratios is just as easy.
|
Day Traders
A day trading version of P.O.P. provides all the tools necessary to
trade options in a real-time environment. Ease-of-use, speed,
and error-checking features are all especially critical. What follows is how
P.O.P. is used by a floor trader in a typical day, and is just one of
many different scenarios.
Run a start-of-day position using futures quotes from the overnight
market.
Print a set of "delta sheets". These pages have options prices, deltas, etc.
for each option at regular intervals in the underlying.
Enter trades into P.O.P. as they are made and print an updated risk analysis.
Download end-of-day prices from the Internet and imply skew curves
from those settlement prices.
Print a mark-to-market profit/loss report that breaks your position
performance down by strike and contract month.
Use the interactive graphs and curve-smoothing tools to manually adjust
the skew.
Print an end-of-day market summary for study overnight.
Banks and Clearing Houses
For large firms, P.O.P. can analyze and combine many different options
portfolios for a summary of global risk. In addition, because P.O.P. runs
on a network, traders at many different exchanges can be managed from a
central location. Most importantly, absolute risk reports
allow the financial guarantors of a position to be aware of worst-case
scenarios. It is for these reasons primarily that PMpublishing's consulting
services have gained such popularity.
|