Portfolio Risk Analysis Tool

The risk analysis tool found in the portfolio report window allows you to analyze your position's estimated risk. The tool enables you to analyze the profit or loss based on a percentage up or down move. The risk analysis window generates risk arrays for all positions and queued orders. An industry-standard theoretical option pricing model is used to determine potential real-time gains and losses at various price points, levels of volatility, and future dates. 


Location of Risk Analysis Tool

To access the Risk Analysis tool click on the capital requirements button in the top right of the platform (CAP REQ). In the capital requirements window, click on the check box next to each symbol and or position you wish to analyze. To view all positions, click the check box on the top row next to "Total." After selecting which positions to view, click on the "Risk Analysis" button at the top of the window. Risk arrays calculate each position using a Black-Scholes Options Pricing Model to determine potential gains and losses at various price points, levels of volatilities, and future dates. The maximum expected single-day loss from these price moves aggregate to determine the overall gains and losses for the portfolio displayed on the top row.


Animated example of opening Risk Analysis tool


Alternative Minimum/Vega-Minimum Requirement

Alternative Minimum Requirement for Naked Options
An alternative minimum requirement will be calculated for each underlying by multiplying the number of uncovered short options by a variable percentage of the underlying deliverable value. While this variable percentage can change at any time and may be different depending on the underlying, the default percentage is 0.5%. For example, if you were to sell-to-open 1 ABC call while ABC is trading at $500 and the variable percentage for ABC is 0.5%, the alternative minimum requirement for this ABC position would be $250 ($500 x 100 multiplier x 0.5%). Additionally, naked equity index options will have a  default variable percentage of 0.25%.


Alternative Minimum Requirement Vega Test
An alternative minimum requirement will be calculated for each underlying by finding the worst-case net vega scenario and multiplying it by a variable factor. This variable factor can change at any time and may differ depending on the underlying; the default factor is 10.

Alternative Minimum and Alternative Vega-minimum values will only populate in portfolio margin enabled accounts. Regulation-T margin accounts will list a blank value of “--".


More details on this can be found in our help center here.

 

Risk Analysis Window Breakdown

Pink: Underlying Symbol (AAPL) and evaluated up and down move percent (-20%/+20%) (adjustable)

Blue: Underlying Price at the time the risk array was generated (adjustable) 

Red: Per Contract Implied Volatility (adjustable)

Green: Risk array for a -3 = -12% down move in the underlying price

Yellow: Risk array for a +3 = +12% up move in the underlying price


For example, in the image above, we have a short AAPL call expiring in 1 month. The risk array displays each extreme (-5/+5) for 20% down and 20% up. The column outlined in green represents the price and total account risk if there was a 12% down move in the underlying. The price underneath the -12% is the underlying price after a 12% move down from 148.28 (148.28 * 0.88 = 130.49). Underneath the underlying price is the theoretical single-day price movement of the short option based on the displayed percentage up or down. The opposite applies to the yellow outline. A 12% up move in AAPL would have a theoretical change in price of -$728 on the short call.


When you open the risk analysis window, the price, volatility per contract, and data will base the values when you open it. Click on the refresh button at the top of the window (two arrows in a circular motion) to update to the current price and volatility. 


The price, volatility per contract, and data will be based on the values at the time you opened the risk analysis window. Click on the Refresh button at the top of the window (Tow arrows in circular motion) to update to the current price and volatilites. 


Select Positions from the Cap Req Window

To add positions to the risk analysis window, click on the gray checkbox next to each symbol or position you wish to view. Click on the topmost check box to view all positions.


Animated example of selecting positions to view on the risk analysis tool

 

Add and Remove Order Legs

On top of your existing positions, you can also view the risk profile of opening simulated trades. Open an order ticket for the trade you would like to analyze. Click on the Positions tab and then on the CAP REQ button in the top right corner of the platform. Once in the risk analysis window, click on Add Order Legs to populate your orders risk array. To clear the simulated trade from your risk analysis window, click on Remove All Order Legs.


Animated example of adding an opening trade to the risk analysis window


Price Percentage Overrides

Override - None
With no overrides active, the risk arrays will list arrays based on their default house price move percentages. The house price move percentage can vary between symbols (generally, this percentage sharply increases near earnings and other significant events).


Override - β-weighted
You can now Beta-weight your risk arrays to a particular symbol. First, click on the override dropdown in the top right corner and then select β-weighted. By default, your arrays will be beta-weight to SPY (at this time, you can only beta-weight to SPY). Next, select the percentage up and down move in SPY you wish to view. Arrays will update in real-time based on the percentage move selected. For example, if you want to analyze your positions after a 20% move in SPY, simply select an override percentage of 20%. The equivalent move percent for viewed symbols will reflect in the top row of each symbol. Symbols with a beta of 1.0 will show a max up and max down move of 20%, whereas symbols with differing beta values, such as V (0.91β), will show maximum up and down moves of 20%*0.91 = 18.1%.

At this time, the risk analysis tool cannot beta-weight symbols with a negative Beta (VIX is an example). Risk arrays for symbols with a negative Beta will maintain the default house price move percentages for the symbol, which in the example below is 20% for VIX.


Override - Uncorrelated
Selecting the Uncorrelated override will adjust all risk arrays to the price move percentage selected in the override tool. Price move percentage across all symbols will equal the override percentage chosen. In the example below, all risk arrays list a 20% down and 20% up, based on the override percentage selected being 20%.  

 

Adjust Underlying Price, Evaluation Date, and Per Contract IV

Each column calculates the price of options and theoretical gains and losses based on the percentage move in the underlying. The risk array will default to a 20% up and 20% down move at each extreme. The far-left and far-right columns of the risk array will be the theoretical change in price from a 20% up move and or 20% down move in the underlying. You can adjust movement percentages from 5% to 100%. Additionally, you can change the evaluated price of the underlying and the day of evaluation, which allows you to place "what if scenario's scenarios "to see how changing price movement and implied volatility will affect position exposure. In turn, you become your best Risk Manager!


Animated example of changing underlying price, move percent, and evaluation date

 

Export Risk Analysis to CSV

Click on the CSV button at the top of the risk analysis window to download a CSV file of the displayed data. The CSV file will not update in real-time, and you would need to refresh and download another risk array for updated prices or volatilities.


Location of CSV file download button 

 

Option Expiration Risk

Unchecking expiring option strikes in the Risk Analysis' risk arrays will show your position's exposure with expiring hedges to manage option expiration better and make sure that any hedges are in place before exercise/assignment. For example, the account in the animation below holds two strangles in SPY for the Sep 27th expiration and two long calls for the Sep 20th expiration (Sep 20th being the current day). To analyze the potential upside or downside risk on your strangle after your long options expire, you can uncheck the expiring legs and view the theoretical profit or loss changes on the risk array. In this case, since the long calls are a hedge for the upside on the strangle, there would be a large increase in upside risk on SPY for this account after the long calls expire.


Animated example of analyzing hedged positions


Risk array including expiring hedges


Risk array excluding expiring hedges