|
Please note that the Options risk ladder is exclusive to SaxoTraderPRO. |
The Options risk ladder (ORL) is a tool for option traders to obtain a quick overview of the risk exposure (“greeks”) of their portfolio for different values of the underlying spot.
The ORL calculates PV change, Delta, Vega and Theta for a range of spot values. The user is able to specify the range of spot values that they would like to consider.
As the definitions of the greeks are slightly different for equities and FX, we provide a separate description for equities and FX below. We also describe and interpret an example of a concrete risk ladder.
|
Saxo's Options risk ladder is mark to model and as such is not a guarantee of actual change within your portfolio under the displayed market stress situations. The ORL only provides its modelled view of the market and should not be used to manage potential margin events. The ORL only contains a subset of the instrument universe provided by Saxo and as such any instruments not contained within this subset will not impact the ORL results shown. |
There are two ways to view the Options risk ladder in SaxoTraderPRO:
- Navigate to Add Module > click on Options risk ladder
- Navigate to the Position list > select an Option > click on Options risk ladder
|
Note: In addition to the Options risk ladder, Saxo offers a wide range of other trading tools. To learn more about them, click here. |
In this article, we explain the following:
Equity ORL
PV change
The PV change measures the change in the Mark-to-Market (MTM) value of the portfolio as a function of the underlying spot. For example, if the PV change is +25,000 USD for a 2% decrease in spot, it means that the portfolio will gain 25,000 USD if spot drops 2% from its current level, all else equal.
Delta
Delta measures the change in the value of the portfolio for a 1% increase in the underlying spot. For example, suppose the underlying is AAPL stock: a delta of -10,000 USD then signifies that a 1% increase in the price of AAPL stock will lead to a loss of 10,000 USD for the portfolio, all else equal. Similarly, a 1% decrease in the price of AAPL stock will lead to a gain of 10,000 USD for the portfolio, all else equal.
Vega
Vega measures the change in the value of the portfolio for a 1% increase in implied volatility. Note that 1% here means “1 vol point”, e.g. an increase from 20% implied volatility to 21% implied volatility. For example, suppose the underlying is AAPL stock and that implied volatility is currently flat at 40%: a vega of +5,000 USD means that an increase in implied volatility from 40% to 41% will lead to an increase in the value of the portfolio of 5,000 USD. Similarly, a decrease in implied volatility from 40% to 39% will lead to a portfolio loss of 5,000 USD.
Theta
Theta measures the change in the value of the portfolio from the passage of time alone. More specifically, it measures the change in the value of the portfolio as time is rolled forward by one day. For example, a theta of -100 USD means that the portfolio will lose 100 USD over the next day if nothing else happens.
FX ORL
PV change
The PV change measures the change in the Mark-to-Market (MTM) value of the portfolio as a function of the underlying spot. For example, if the PV change is +25,000 USD for a 2% decrease in spot, it means that the portfolio will gain 25,000 USD if spot drops 2% from its current level, all else equal.
Delta
Delta measures the equivalent amount of CCY1 that the trader is long or short, i.e., the amount of FX spot that one must buy or sell in order to neutralize the exposure to the underlying spot. For example, suppose the underlying is EUR/USD: a delta of +1,000,000 EUR then signifies that the trader is currently long 1,000,000 EUR, i.e., one must sell 1,000,000 EUR/USD FX spot to neutralize their exposure.
Vega
Vega measures the change in the value of the portfolio for a 1% increase in implied volatility. Note that 1% here means “1 vol point”, e.g., an increase from 10% implied volatility to 11% implied volatility. For example, suppose the underlying is EUR/USD and that implied volatility is currently flat at 10%: a vega of +5,000 EUR means that an increase in implied volatility from 10% to 11% will lead to an increase in the value of the portfolio of 5,000 EUR. Similarly, a decrease in implied volatility from 10% to 9% will lead to a portfolio loss of 5,000 EUR.
Theta
Theta measures the change in the value of the portfolio from the passage of time alone. More specifically, it measures the change in the value of the portfolio as time is rolled forward by one day. For example, a theta of -100 EUR means that the portfolio will lose 100 EUR over the next day if nothing else happens.
Learn more about option greeks on FX Options here
Example of an ORLConsider the ORL below. The underlying is Nasdaq 100 and the client holds several option contracts at different strikes. We can use the ORL to gain some quick insights as to the risk exposure of the client:
|