Chapter 12. Options, Portfolios, Hotlists
This chapter covers option sheets, portfolios and hotlists. Option sheets are for listing and studying option chains, which are contracts that give the owner a right to buy or sell an underlying stock. Portfolios are quote sheets that contain information like the number of shares purchased (or shorted), when purchased, the price paid, net gain or loss, and the stop limit. This can be used to calculate return and other important performance results right in your quote sheets. Hotlists are powerful custom lists that are part of the QFeed service. These hotlists contain lists of stocks, including things like the top point gainers, the top percentage gainers, the top volume gainers, and so on. Hotlists are updated every 30 seconds.
Option Chains and a Few Good Books
An option "chain" is a collection of unique symbols that represent the various option contracts that can be traded for a particular stock. These contracts have different strike values and expiration dates. They offer the owner the ability to buy and sell shares of stock without paying the full price of the stock. They are rights, not actual inventory. Thus the price is some fraction of the stock they represent and the premium or price of these options is time sensitive and extremely volatile.
Options are an exciting but deep topic. Here are some favorites.
|
The Options Course: High Profit &
Low Stress Trading Methods (Wiley Trading Advantage) |
George A.
Fontanills |
Wiley, 1998 |
This book did a
fantastic job of getting the complex ideas of options bored deep into my
brain (I had started with the more technical books too soon.) Covers the
basics well with just enough detail. |
|
Getting Started in Options |
Michael C Thomsett |
Wiley, 3rd
Edition, 1997 |
A super simple easy
to read visual book. |
|
Options as a Strategic Investment |
Lawrence G.
McMillan |
New York Institute
of Finance, 3rd Edition, 1993 |
This is a deep
technical book for real nerds The cover claims 100,000 copies sold. |
|
The Options Course: A Winning Program
for Investors and Traders |
Rudi Binnewies |
Irwin |
The best book on
options I have ever seen, unfortunately out of print but I was still able to
buy one via Amazon.com. |
Table 1 Mitch's Favorite Books for Options
An Option Sheet 
In ErlangerQuote an Option Sheet can be created like a Quote Sheet by selecting File->New->Option Sheet or by clicking the New Option sheet icon in the toolbar. This will display a dialog box like the one below. This is where we the parameters of the list can be set. The Month for the contracts can be a specific month or all months, the strike minimum and maximum may be entered. The Type of option: Put, Calls or Any can be selected in the Type dropdown.
Figure 2A Import Option Chain showing the Month menu
Figure 2B Import Option Chain showing Calls and Puts menu
When the OK button is clicked an option chain is generated in a quote sheet. For example, the figure below shows an Option sheet created for the stock Human Genome Sciences (symbol HGSI). The [any] months option was chosen and no restrictions on strike price were used. The asterisk wildcard symbol (*) can be used.
The window is made up of two sections "stacked" on each other. This is imaginatively called a Stacked format Option sheet. The top half of the sheet contains Calls and the bottom half contains Puts. There is also a Side-by-Side format, which puts the Calls on the left and the Puts on the right.
In the option sheet below I have added a collection of indicator fields to the Call options displayed in the top stack. These fields are called the Greeks. I selected them with a right click then Fields->Options->Delta for example.
Figure 3 Option Sheet
with Greeks added to columns, stacked format
The Greeks
Option Greeks are a set of measurements that help you explore the risk exposures of specific trades. Except for Vega these risk measurements are named after letters of the Greek alphabet.
Delta As a stock goes up and down in value, the prices for the premium of a call option contract also goes up and down the same way. They are proportional. However the movement in the stock and the option are not one to one, which is if the stock goes up by $1, the option does not go up by that same amount. Delta measures the change in the price (premium) or an option relative to the price change of the underlying security. Suppose a stock changes in price from $60 to $64 ($4) and the option premium changes from $5 to $8 ($3). So the option has a delta of $3/$4 or $0.75. This could be represented as a percentage of 75%. A value of 1 or 100% occurs when the option and stock follow each other perfectly, on a 1 to 1 ratio.
Delta is used to measure market risk or market exposure. If you study options in more detail you will learn that delta can be used to help you balance the risk of stocks with option selling or purchasing, something called hedging. The details of this are beyond the scope of this manual, but are covered in the books mentioned at the beginning. In the above option sheet we can see that the HGSI Sep135 Call has a delta of .9777 while the Sep 170 call has a delta of .0409.
Gamma is a measure of the sensitivity of the delta and the speed at which the position becomes unbalanced. Gamma is defined as the change in delta given a unit change in the price of the underlying security. If gamma is large it means that a small change in price of the underlying will make large change in the option price and if the gamma is small it will take a larger change in the price to influence the option price. Gammas are usually very small values, as you can see in the example for HGSI calls they range from .0375 down to .0039.
Theta Options have expiration dates at which point they are worthless. Therefore their value decreases everyday. This reduction in value is called the option's time decay or theta. Essentially this is the drop in the price of an option in one day. If we are discussing a long call or put the option position loses value each day but if we are talking about a short call or put the position gains value each day. Theta is a different kind of Greek than Delta and Gamma because time is involved.
Vega is a change in the price of an option with respect to its change in volatility.
Formulas and Option Sheets
You may want to add formulas to Option sheets to help filter those that meet your specific criteria. For example below are 3 requirements that many option traders usually need to consider an option suitable to think about selling or buying:
· Open Interest > 250. This is the number of open contracts. 250 contracts are 25000 shares (100 shares per contract).
· Last > 10. Make sure the price is high enough to generate some cash flow.
· Days to Expiration are greater than a month. Less than a month and theta is there to hurt you.
A formula can be set up that attains all three of these goals in one statement. The formula we insert in a column is:
OI(D) > 250 and Last > 10 and DaysToExpiration > 30
The results for HGSI are shown in the figure below. We turned off Sort Lock, turned on AutoSort and clicked on the header with the formula to force the True values to the top. We used the word "Suitable" instead of True, and as you can verify the options at the top of the column all have Open Interest greater than 250 contracts, Last is greater than 10 and the Days to Expiration are all over 30 days.
Figure 3 Option Sheet showing formula
You could now set up alerts that tell you when the Last has changed a certain percent, or the price has fallen to your bid, or whatever you can imagine.
Producing with Portfolios
While a charting program can give amazing insights into the direction and future movement of a security, it can't tell you what you paid for the stock, when you bought it, and how much you would make it you sold it right now. ErlangerQuote provides all this and more in its portfolio and position features.
Any ErlangerQuote quote sheet can be turned into a portfolio. A portfolio not only lets you save information about your purchase or sale, it also adds up the totals for your columns. For example you can get the subtotal for the total profit and loss of a group of stocks.
How do you make your quote sheet act like a portfolio? Simply dress it in a Portfolio gown; namely right click on a quote sheet and select the Position item in the menu. This will produce a submenu like the one below:
Figure 4 Position menu
As you can see there are a large number of position related items on this menu. Each of these has a specific meaning and function, but the ones we are most interested in are the basics:
· # Shares (the number of shares we bought)
· Basis (what we paid for each share)
· Entry Date (when we bought it)
· P/L (profit and loss as a percent)
The first 3 fields are ones that you have to specify, however P/L is calculated by the program once you have entered the # shares and the basis. Below we have selected these fields from the menu and added them to our quote sheet. Note that except for Entry Date, the items are all empty. The default in the Entry box is the birthday of ErlangerQuote .
Figure 5 Quote sheet Portfolio showing empty position columns
Next we need a way to enter the information for the # Shares, Basis, and Entry Date. This is what the Position Floating Dialog box will do. Right click on the quote sheet and select Positions… at the top of the menu. Do not confuse this with the Position menu that displays the Position Submenu. The dialog box below should appear in your workspace.
Figure 6 Position dialog box
The position dialog will update its contents when you click on any row in the quote sheet. We clicked on AOL and entered the following:
· # Shares: 1500
· Basis: 50
· Entry Date: May 17, 2000
We then clicked on the next row and continued entering position information, which resulted in the screen below. The P/L field is a "calculated" field and so ErlangerQuote updated the value as soon as we completed the entry of the fundamentals.
Figure 7 Quote sheet Portfolio showing filled position columns
Beyond the Valley of the Break Even: Cost, Value, Return, P/L Today
Profit and Loss (P/L) is calculated by subtracting the current value of the stock, which is the cost per share today times the number of shares, from its cost. We can add these kinds of fields with a right click on a quote sheet and selecting Positions.
- Position: Cost tells you what you paid for the security
- Position: Value shows you what its worth today.
- Position Return: The percent your P/L represents
- Position P/L Today: The P/L Today field shows you how the profit and loss for the day was in a percentage. It’s based on closing price of the day.
You'll need to add your own color rules to this column so it shows positive values in green and so on.
More Position: Stop and Risk
With your Position dialog box still open add these new fields: Stop, Risk ($), Risk (Pts), and Risk (%).
To use the Risk fields you have to understand that the amount you enter for the Position Stop sets these values. You can use the stop value for different things. If you are profitable you can use it to tell you at what price you would hit a profit target and get out. For example if we bought AOL at $40 and its now at $56, we could put in a stop of $50 meaning sell when and if it hits $50 otherwise leave it alone.
Adding Formulas to Portfolios
All the position information that is on the Position menu is also available as variables in the internal formula engine. If you visit the Formula Reference at Help->Formula Reference and scroll to the formulas that start with "pos" as follows:
· Position Basis
· Position Commission
· Position Cost
· Position Entry Date
· Position Multiplier
· Position Profit/Loss
· Position Profit/Loss Today
· Position Return
· Position Risk Dollar
· Position Risk Percent
· Position Risk Points
· Position Shares
· Position Stop
· Position Value
On your previous quote sheet right click, Position->Position Return. This will add a new column at the end of the sheet called Return, which will tell you the percent return for each row in the sheet. Now right click and select Column->Insert Formula Column. When the Formula dialog appears, go the formula dropdown and find the formula posReturn, and add it to the formula area. Then modify it so it’s like this:
posReturn > 0.10
What this says is make this still True if the return exceeds 10%. We went to the Alert tab of the same dialog and selected custom alerts and changed the text from "True" to "Hit Target" as you can see below:
Figure 8 Quote sheet Portfolio showing formula column
Hotlists
Hotlists are a special kind of quote sheet that the Quote.com servers update on a regular basis. Instead of entering symbols you select a category from a built in list, and the QFeed servers update the Hotlist sheet all day long. The list represents market opportunities that Quote.com "scans" every 30 seconds. To be included on any Hotlist the security must have a volume of at least 100,000 shares in the day.
Essentially these Hotlists are designed primarily to locate a market early in the trading day before other investors jump on them. The large list of available Hotlists is shown in the table below:
|
Hotlists and
Descriptions |
|
|
US Stocks Point Gainers |
Stocks with the
largest positive Net change from yesterday's close |
|
US Stocks Point Losers |
Stocks with the
largest negative Net change from yesterday's close |
|
US Stocks Pct Gainers |
Stocks with the
largest positive Net percentage change from yesterday's close |
|
US Stocks Pct Losers |
Stocks with the
largest negative Net percentage change from yesterday's close |
|
US Stocks Volume |
Stocks with the
highest number of shares traded today |
|
US Stocks: Volume Rate |
Stocks with the
most number of shares traded in the last minute |
|
US Stocks #Trades |
Stocks with the
most number of transactions recorded today |
|
US Stocks: Trade Rate |
Stocks with the
most number of trades in the last 30 seconds |
|
US Options #Calls |
Options with the
most number of call options in existence |
|
US Options #Puts |
Options with the
most number of puts options in existence |
|
US Options Call Volume |
Options with the
highest volume of call options traded today |
|
US Options Put Volume |
Options with the
highest volume of put options traded today |
|
US Index Pct Gainers |
Indexes with the
largest percentage increase since yesterday's close |
|
US Index Pct Losers |
Indexes with the
largest percentage decrease since yesterday's close |
|
US Stocks Very Short Term Up |
Stocks whose
current price is farthest above the extreme low price of the last fifteen
minutes |
|
US Stocks Very Short Term Down |
Stocks whose
current price is farthest below the extreme high price of the last fifteen
minutes |
|
US Stocks Most Volatile |
Stocks with the
largest percentage difference between today's high and low |
|
US Stocks Largest Range |
Stocks with largest
net difference between today's high and low (or yesterday's close - if
outside today's range) |
|
US Stocks Unusual Volume |
Stocks whose volume
today is farthest above the 65-day average daily volume |
|
US Stocks Unfilled Gaps |
Stocks with the
largest unfilled opening gap - where the stock opens away from yesterday's
close |
|
US Stocks Above VWAP (cents) |
Stocks whose
current price is farthest above the Volume Weighted Average Price (VWAP) for
the day |
|
US Stocks Below VWAP (cents) |
Stocks whose
current price is farthest below the Volume Weighted Average Price (VWAP) for
the day |
|
US Stocks: Highest $ Put/Call Ratio |
Stocks with the
highest ratio (dollar weighted by price) of put options to call options |
|
US Stocks: Highest $ Put/Call Ratio |
Stocks with the
lowest ratio (dollar weighted by price) of put options to call options |
|
US Stocks: New Yearly Highs |
Stocks making new
yearly highs |
|
US Stocks: New Yearly Lows |
Stocks making new
yearly lows |
|
US Stocks: Weekly Pct Gainers |
Stocks with the
largest percentage gain in price in the last five trading days |
|
US Stocks: Weekly Pct Losers |
Stocks with the
largest percentage drop in price in the last five trading days |
|
US Stocks: Monthly Pct Gainers |
Stocks with the
largest percentage gain in price in the last month |
|
US Stocks: Monthly Pct Losers |
Stocks with the
largest percentage drop in price in the last month |
|
US Stocks: Quarterly Pct Gainers |
Stocks with the
largest percentage gain in price in the last three months |
|
US Stocks: Quarterly Pct Losers |
Stocks with the
largest percentage drop in price in the last three months |
|
US Stocks: Yearly Pct Gainers |
Stocks with the
largest percentage gain in price in the last year |
|
US Stocks: Yearly Pct Losers |
Stocks with the
largest percentage drop in price in the last year |
Table 2 Hotlist
Descriptions
Hotlists have various uses. For market opens these are good Hotlists to follow:
· Unfilled Gaps
· Point Gainers
· Percent Gainers
For Hotlists more useful during the day consider:
· US Stocks Above VWAP
· US Stocks Below VWAP
· Unusual Volume
· Very Short Term Up
· Very Short Term Down
Your First Hotlists
Hotlists are easy to use. ErlangerQuote is extra useful with Hotlists because you can create a HotList that contains the results of combining several other HotLists. With this function you can display only those stocks that are BOTH in the Top Point Gainers and the Top Volume Gainers.
To make a HotList click on the Hotlist icon in the toolbar (a quote sheet with a flame) or select File->New->HotList. This brings up the Hotlist Dialog box as shown below.
Figure 9 Hotlist Preferences
The dialog box contains a list of all the Hotlists that are available at Quote.com. You can click on any list and select it. The Title area lets you give your list a custom name. Clicking on OK subscribes you to the Hotlist. The Refresh Rate (in seconds) controls how often the list is updated. We will cover the Filter and the Builder soon. When we click on the first hotlist, US Stocks Point Gainers, we get the Hotlist below .
Figure 10 Hotlist showing US Stocks Point Gainers
The Hotlist shows all the stocks on the various exchanges that have had large point gains during the day. The Hotlist automatically sorts the list by what is called the Basis, which is the size largest to smallest of whatever is being measured, in this case it’s the point gain. In another case it may be a volume value.
There is also an Index number, which you can sort on that ranks the Basis from highest to lowest. The default Hotlist is pretty bare bones when it’s first generated. However like most things in ErlangerQuote it can be customized. You can add all the additional fields and column formulas you wish. In the US Stocks Top Point Gainers we added columns for Title, Last and Net.
Figure 11 Hotlist showing US Stocks Point Gainers, with Last and Net fields added
HotList Builder
Suppose you want to filter a Hotlist so you don't see ALL the stocks that are on the list, but rather a subset of the combination, based on a formula you set. You can do this with the Hotlist Builder. To use the Builder, right click on the Hotlist Window and select Hot List Preferences. In the Preferences dialog, click on the Builder button. This will bring up the standard formula dialog box. Enter this formula:
V(D) >= 5000000
This says only show Point Gainer stocks that also have volume over 5 million shares. So this will further restrict the list of stocks since it must not only be on both lists but must also have a volume above a certain minimum amount. You can save the formula with a regular name. This formula lives inside the Hotlist so you won't see it mentioned in the Hotlist title bar or anywhere else. To see the formula you must open the Hotlist Preferences.
Formulas and Hotlists
Yes Virginia you can put formulas in Hotlist columns. To the US Stocks Volume hotlist(stocks with the highest number of shares traded today)below we added a Volume column from the Field menu to display today’s volume. Then we added two formula columns.
The first contains the formula to display the volume for the previous day:
V(D,-1)
The second formula column contains a formula that calculates the percent change in volume from yesterday:
( V(D)-V(D,-1) ) / V(D)
Now if we sort on the formula ( V(D)-V(D,-1) ) / V(D), the list will bring the Volume gainers with the largest percentage gain in volume compared to yesterday. The results of this Hotlistare shown below.
Figure 12 More Formulas added to Hotlist
This shows you how you can customize your Hotlists to no end. Now when the Hotlist is updated during the day the percent gainers will jump to the top of your list.
Combining HotLists
First create a US Stocks Point Gainers Hotlist and then a US Stocks Volume HotList. The two lists should fill with stocks and look like the two figures below.
Figure 13A 1st Hotlist
Figure 13B 2nd Hotlist
Now create a 3rd new HotList with File->New->Hotlist. From the dialog Ctrl-click on the two lists we created previously (US Stocks Point Gainers and US Stocks Volume). Both names should be selected now. Note we only made the first two lists so you can see the comparisons, in normal use you would not just create one combined list.
Union
In the middle of the Hotlist dialog box are two radio buttons labeled, “Show symbol when it appears on:” To activate these buttons, you can select two or more HotLists. For example, select US Stocks Point Gainers and then hold down the Ctrl button and click on US Stocks Volume. ‘The Show symbol when it appears on:’ will activate so you can select any selected list or all selected list. If you select Any Selected List then any symbols that appear on an individual list, will be on the new list. If you select All Selected Lists the symbols in the new list will only appear if they are on both the lists that are selected.
Any selected list button. All selected list button.
Figure 13B-2 Hotlist Dialog showing Any vs. All Selected list button.
This powerful feature will allow you to sort for stocks going up in price and also doing so on high volume. A great way to look for stocks making potentially strong moves up. To illustrate this, click on All Selected Lists then click on OK. You should get a 3rd Hotlist, only this will have fewer stocks on it, as shown below. This represents only those stocks that were on both lists. Note the title bar has both names and the word Multiple to help you know this is a Hotlist with multiple values.
Figure 13C 3rd Hotlist, shows Union of 1st and 2nd
This list contains the "union" of stocks on these two lists, which means that it displays those stocks that were on both lists. So we have the stocks with the highest point gain for the moment, filtered by those with the most volume. When CNBC talks about a security "surging" in price, they mean one of the large volume leaders having a large price increase. We created the union by selecting the point gainers first and then volume gainers, so the list is sorted by volume. This is because the last Hotlist type entered controls the main sorting column. Selecting the volume hotlist first, and then the point gainers, will reverse the sorting so that the list will be sorted by Point Gainers.
In the figure below we added some columns to the Union list to show more details about the results. Because this union filters out the stocks that only qualify on both volume gainers and point gainers, you may not see the largest volume leaders or the greatest price increase leaders.
Figure 13D 3rd Hotlist, embellished with some formulas
Static HotList
Suppose you just want a snap shot of a HotList. That might be more than enough if you are looking at winners in the morning and wanting to analyze them for further up swings. To get a snap shot of a Hot List, create a new Quote sheet with File New Quote Sheet. Right click anywhere on the quote sheet and select Import Hot List. This will insert the current stocks shown on the hotlist, but will not update. This will give you the opportunity to track those early gainers throughout the day.