OptionVue new ver. 7.71 Modelling Problems

Discussion in 'OptionVue Forum' started by Jay Winger, Oct 30, 2015.

  1. Jay Winger

    Jay Winger Active Member

    John Locke's 11/19/15 comments on the current software modelling landscape (posted with permission from John):

    Essentially, the deal with OptionVue is as follows:
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    There have been 3 recent changes that I know of, a data provider change, a model update that was done a few months ago that had to be reversed and the most recent one that had to be reversed.
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    Since the data change and the earlier update and subsequent reversion I have noticed larger than normal Delta fluctuations and larger than normal P/L fluctuations when using Quote View. From my understanding this has always been an issue with TOS and IB feeds.
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    I don™t know what happened for sure but my belief is that this issue is due to very slow updating of far from the money options.
    OV says that is not possible as the new data provider is supposed to be faster than the previous one however I disagree. This is because I™ve noticed some of my options have been taking up to 5 minutes to update and Id think that I would have noticed it by now since Ive been doing the same thing for nearly 10 years.
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    This slow updating can throw the Greeks around quite a bit and if those options are deeper ITM then that makes for drastic P/L changes when the underlying moves and the option price does not update on that option. Think about it if you have just one 100 Delta option and RUT moves 10 points, the value of the option will change $1000. If the price in the matrix on that option is delayed then you p/l will be way off. The same phenomenon with higher Gamma options.
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    Despite these fluctuations however the T+0 line and Greeks numbers seemed to be reasonably the same as they always have been.
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    Since the second update and subsequent reversion, the T+0 line and Greeks numbers have been proven to be significantly different than the previous versions. In addition, the fluctuations appear to have increased as well.
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    OptionVue'™s position is that they know there is a problem but they are unwilling to correct it as they are determined to a new model change. Therefore the previous model that worked so well is likely gone forever.
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    The model change in question is designed to make the software much more closely match the actual IV points on the options. Since the EIOIO model and TOS models are the actual IV points on the options, my best guess would be we're going to end up with something very similar to TOS and EIOIO models.
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    If this is the case, we will deal with it and make corrections to guidelines as needed.
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    The reality is the systems we trade will work in a similar fashion with the current guidelines on TOS/EIOIO models 85% of the time. Its the 15% or the time where the TOS model really breaks down where there is an issue. And that™s only an issue if the market keeps going in the same direction.
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    For now I™d suggest the following:
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    The EIOIO model and TOS handle OTM options much better than ITM options. The ITM put options are in particular problem for EIOIO projections of the price moving higher. Therefore I™d suggest that we do what we can to keep as many put options OTM as possible.
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    This means iron butterflies for the M3, BB and ROCK trades for the purposes of modeling and more stable T+0 and Greeks numbers..
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    Regarding the Greeks numbers. The variable settling is currently showing too negative Delta and is projecting too much sag¦ IN THE FRONT OF THE POSITION. The EIOIO is showing too positive Delta and not enough sag ¦ IN THE FRONT OF THE POSITION.
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    In contrast the EIOIO settling is currently showing too negative Delta (starting approximately) BEHIND THE SHORT STRIKES. The variable is showing too negative Delta AHEAD OF THE SHORT STRIKES. Once the short strikes are exceeded by 10 points the variable appears to be most representative of reality.
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    Therefore I am analyzing both positions and using the average numbers between the models weighted to where I am in the position. Its a bit subjective but is better than using either one over the other.
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    I do recommend keeping the matrix strike extents on large while doing this¦. at this time.
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    **In OV I suggest keeping the call/put skews on in the variable model and off in the EIEIO model WHEN USING IRON BUTTERFLIES ONLY
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    Once we see what we have with the new OV model, we can be more specific with recommendations.
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    In addition ONE is working on improving their model so I am keeping up to date with their progress and may have recommendation there as well.
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    Feel free to share this statement in other groups and please keep me updated with any feedback you guys have.
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    Thank you.
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    John
     
    Last edited: Nov 19, 2015
  2. GreenZone

    GreenZone Well-Known Member

    No mention of TOS "volatility smile approximation" by John Locke ??
    In my opinion, it gives the most reliable greek projections at the moment.
     
    Jay Winger likes this.
  3. GreenZone

    GreenZone Well-Known Member

    Ok, let's recap John Locke's suggestions for people choosing to continue using OptionVue:

    1) Stop using put BWBs and use irons instead

    2) Look at your greeks with both EIOIO and Variable Variance, and then calculate the average of the two in order to get a reasonable estimation of the "true greeks"

    3) Keep all extents set to Large (even though OptionVue have shown that doing so with the current version produces inaccurate best fit curves and therefore throws off the greeks)

    4) keep the "combine call/put skew" enabled when using Variable Variance, and turn that option off when using EIOIO......but only if you're using iron butterflies


    Now here's my suggestion:

    1) use TOS "volatility smile approximation" for greeks and TOS "individual implied volatility" for current P&L

    That's it.
     
    Meathead and Jay Winger like this.
  4. Scott Slivnik

    Scott Slivnik Well-Known Member

    Ron,
    For some reason your suggestion seems simpler.:)

    John advised his members to avoid using Volatility Smile in one of his weekly update videos. I forget his exact words but it was something along the lines of it was too much work and/or too confusing. It is actually dead simple after one gets used to it.
     
  5. GreenZone

    GreenZone Well-Known Member

    John Locke has a pretty unshakable belief that combining call/put skew is critical.
    I've had discussions on this topic with him, and I explained my viewpoint in terms of various technical (options theory) reasons as to why it made little sense to combine the skews.
    Note also that everyone at OptionVue has always recommended turning off the "combine call/put skew" setting when trading the major indexes.
    John didn't argue with any of the points that I had listed......yet he said that his own personal testing, as well as that of some of his students, had found that combining call/put skew gave slightly more accurate results.
    My personal tests found the opposite; my tests found more accurate results by having that feature turned off, as is recommended by OptionVue staff and developers.
    So we had to agree to disagree on this topic.

    I wouldn't be surprised if John's reluctance to use TOS is based on the fact that it doesn't have the ability to combine call/put skews.

    So I would strongly encourage each of you to test it out for yourselves.
    Use the TOS "volatility smile approximation" for your greeks and "individual implied volatility" for your current P&L, and then compare it to:
    a) reality (ie check your new P&L after a price move and see if it matches with what was predicted)
    b) your current trading platform (eg OptionVue, etc)

    After tracking your live positions in both for a week or two, you should be able to make the determination of which is more accurate.

    I've already been doing the above with my trades (which are John Locke style), and I've found that TOS vol smile is currently giving me equal or more accurate greek projections than anything else.

    I refuse to continue paying for software where we have to do half a dozen manual steps in order to get viable greeks.
    I've also had many frustrations with many ongoing bugs in the OptionVue software, so this current issue was the last straw for me.
    I used to think that even though I had all of these frustrations, there was simply no choice other than OptionVue for realistic greeks.
    Now I'm perfectly happy using TOS vol smile to manage the greeks of my live positions, and I use Optionet Explorer (beta) for backtesting and for easily testing potential adjustments to my live positions.
     
    Rick, Trader G, Meathead and 2 others like this.
  6. DavidF

    DavidF Well-Known Member

    Thanks for the info Jay.

    As Ron points out, using large only compounds the issue.

    Quote:- "**In OV I suggest keeping the call/put skews on in the variable model and off in the EIEIO model WHEN USING IRON BUTTERFLIES ONLY"

    My understanding was that the EIOIO model didn´t create a skew curve, as the acronym makes clear it´s just each option on it´s own. So don´t understand what difference ticking the combined put/call skew curve makes in that model.
     
    Jay Winger likes this.
  7. Jay Winger

    Jay Winger Active Member

    Ron,
    I think Vol Smile is a good idea for now.
    I have an old version of OV working over here (don't ask me how), and I can confirm that it's greeks (as well as it's risk graph) line up pretty darn well with TOS vol smile, at least on a standard 50pt Jan put butterfly.
    OV:
    upload_2015-11-19_19-9-19.png
    TOS:
    upload_2015-11-19_19-9-40.png

    OV:
    upload_2015-11-19_19-27-7.png
    TOS:
    upload_2015-11-19_19-27-36.png
     
    Last edited: Nov 20, 2015
    KiwiDon and GreenZone like this.
  8. Gabor Maly

    Gabor Maly Well-Known Member

    Great points Ron and who knows TOS vol smile may come out as the "winner". I have also been following all my trades in TOS and I agree it seems to be pretty accurate.
    Why I would hesitate to jump off the OV train just yet and blindly follow TOS is simply fact that all my JL trades have been backtested in OV with JL guidelines in multiple market environments. Since we have the vol smile feature on in TOS what has happened in the market? Some panic sure but nothing to in either direction to hit home about. I also think John will not be too excited about a product where he can not have years and years of backtests that can prove it is accurate....for the size he is trading I would fully understand that hesitation.
     
  9. vega4mike

    vega4mike Well-Known Member

    All very good good comments regarding the various option analytics, unfortunately for those of us in Europe (UK) our choices are limited to OV or ONE. I used to trade with ONE but dumped it for OV due to its relatively limited analytics. Both are quite poor in terms of datafeed from IB, although that may be due to IB's data restrictions which they apply to all their products, but given the nature of options is particularly more noticeable.
    So, I guess, as I have no plans to emigrate to the US, I'm stuck with very limited options & will have to adapt my strategies to take into consideration the poor analytics available.
    Also John's suggestion to use Irons instead of regular fly's doesn't help with the traders with an IB acct, unless your on portfolio margin, as the margin requirements in IB for Irons is very punitive. So far using Brian's Rhino trade concepts appears to work despite the greeks being all over the place as long as you monitor the separate components of the trade, that is the, put fly component, call calendar or call fly components, once you start applying vertical to the fly components, then the greeks matter, however, I just normally look at the risk graph to get a feel for what my risk really is, not ideal, but like I said my choices are limited.:(
     
  10. Hans

    Hans Member

    Are you sure about that? The risk for all Put or Iron BF (same strikes) is identical.
     
  11. Hans

    Hans Member

    Ron, would this also apply to the new ONE modeling? I've not seen much of an effect checking the Combine Call/Put box.
     
  12. vega4mike

    vega4mike Well-Known Member

    As the Irons are uneven, IB will charge a margin for both sides of the legs, this has always been their policy, so if you do a JL style M3 and start out with an Iron fly, normal margin, the moment you apply verticals and end up with unevens, your margin goes up significantly. Unless they have changed the margin policies, which I doubt.
     
  13. GreenZone

    GreenZone Well-Known Member

    Hans, I don't ever recommend using "combine call/put skew" for the major indexes.
    The only reason you're seeing that config option within Optionet Explorer is that Andy is trying to cater to all of the John Locke traders, who believe that this is important.

    In ONE beta, you can see that I'm currently using all of the config options except for "combine call/put skew":
    ONE-beta-options.jpg
     
  14. GreenZone

    GreenZone Well-Known Member

    Once the new version of Optionet Explorer comes out, you'll should have the ability to dump OptionVue, if you choose.
    I'm currently tracking my live trades with the ONE beta, and the greeks look quite good.
     
  15. LearPilot

    LearPilot Guest

    That's great news! I am also very dissappointed with the reluctance of the OptionVue people to provide a modern software instead of this anachronistic mess looking like a relic from Windows 95 times with a horrible user experience... I believe no one would be willing to pay the monthly charges if there was an technically up-to-date alternative with equal modelling capabilities. I think they got too used to having the monopoly.
     
    GreenZone likes this.
  16. Al G.

    Al G. Well-Known Member

    Ron I see that in your ONE screenshot you have a cog wheel by CEV, in the beta version I have a value "0.70" by CEV (no cog wheel). Are you testing out a more up to date Beta that is not out yet?

    Thanks
     
  17. GreenZone

    GreenZone Well-Known Member

    Yes, Al.
    I'm on a newer private beta, version 1.27.13 beta.
     
  18. Al G.

    Al G. Well-Known Member

    I have not been able to find any write-ups on how TOS Volatility Smile works, does anyone know how it takes CEV into account? Is it a static CEV figure (similar to the current ONE beta) or does it take different CEV for different time frames (Horizontal Skew)?

    Thanks
     
  19. Paul

    Paul Member

    Ron,
    Thanks heaps (as you Aussies like to say) for your diligent work on this issue; you have made a huge contribution to the Capital Discussions community on this important topic. Until you pointed it out in one of the trading group 2 sessions, I was not aware of the "volatility smile approximation" option in TOS. Per your suggestion, I have been testing it for the past week or so on Locke-style trades and I agree with your conclusions: it seems to work pretty darn well so far. I am also very happy that you are working closely with Andy on beta versions of ONE to address this issue. I have been quite content with ONE for the past four years, and I only started using OptionVue a few months ago when I started trading John Locke's M3 and Bearish Butterfly. However, I find the user interface to be a bit cumbersome, and a throw back to the early 1990s, as others have pointed out in this discussion thread. The user interface in ONE is much more intuitive and aesthetically pleasing, so now that it appears that a future release version of ONE will have more "accurate" greeks, I will stay with ONE and will likely cancel my OV subscription. So all I can add is: "good on ya, mate!"
     
    Last edited: Nov 22, 2015
    Al G., Jay Winger and GreenZone like this.
  20. DavidF

    DavidF Well-Known Member

    I´m another European who is stuck with OV at the moment. If anyone with ONE and/or TOS using vol. smile can be bothered I´d really appreciate it if you could let me know what position delta you get a current SPX position I have, a Jan iron BWB. I get minus 38 on EIOIO, minus 68 with variable and call extent set to small, minus 77 on moderate and minus 191 on large. That´s notional exposure of approx. $80k, $140k, $160k and $380k respectively. Not optimal for risk management :(. This is the position:-
     

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    Last edited: Nov 22, 2015

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