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TOS vol model

Discussion in 'Options' started by meyer99, Nov 11, 2015.

  1. meyer99

    meyer99 Well-Known Member

    A question to all of you that listened to Don Kaufman today. When we change the vol calculation mode in TOS (setup/app. setting/display), which page/s are we affecting? Analyze, Trade, or both?
  2. Scott Slivnik

    Scott Slivnik Well-Known Member

    I mainly look at the Monitor tab and the Risk Graph and the setting affects both of those. I have been comparing the Volatility Smile Approximation mode in TOS to OptionVue almost daily for weeks now and am impressed with TOS.
  3. Capt Hobbes

    Capt Hobbes Well-Known Member

    It depends what you look at on those pages. Bid and ask prices are not affected, of course, but IV values and anything that depends on them such as the greeks in the option chains on the Trade page and the Risk Profile on the Analyze page are. The P/L you see in price slices in the risk profile is also affected. With approximation on TOS bases it not on the market prices but rather on prices you'd see if IVs were at their approximated values. In OV terms, it shows the t+0 line P/L value instead of the black dot one. Also unexpectedly, if you feed TOS IV data into Excel, the values you get for "IMPL_VOL" with approximation on are the approximated values instead of the market ones.
    Jay Winger and Venkat like this.
  4. Venkat

    Venkat Well-Known Member

    Capt Hobbes explained it pretty well and I am just summarizing it as follows (BTW, I did not listen to Don's video):

    TOS Analyze tab ==> P/L calculated from theoretical prices. Greeks calculated from theoretical prices.
    TOS Monitor tab ==> P/L from mid prices. Greeks calculated from theoretical prices.
    TOS Trade tab ==> Bid/Ask not affected. Greeks calculated from theoretical prices.

    Greeks & theoretical prices are calculated using the volatility model that you choose (volatility model provides the projected volatility which is then used to calculate the theoretical prices and greeks). If you choose "Individual Implied Vol", theoretical prices and mid prices are usually the same. This is same as EIOIO option in OV. P/L in monitor tab reflects market mid prices. For ATM options, mid prices may reflect your true P/L. If you have DITM options and/or way OTM options, liquidity may skew the mid prices and thereby your P/L. Close to reality but not exact. On the other hand, P/L in Analyze tab is reflected by theoretical prices, close to reality but not accurate (especially if you have DITM long call like an M3). If you compare your net liq from the beginning of the trade with your current P/L from the trade, you can notice the difference.

    If you choose "Vol Smile Approximation", that's TOS attempt to mimic OV's CEV modeling; similar but not the same. P/L in monitor tab reflects market mid prices. P/L in Analyze tab (theoretical prices), not even close.

    Bottom line: Current trade's P/L is not yours until you close the trade. P/L you see in TOS monitor tab is reflective of mid prices, close but may be thrown off by illiquidity. P/L you see in Analyze tab is reflective of theoretical prices which are just projections, not a reality until you close the trade.
    Last edited: Nov 17, 2015
    GreenZone and meyer99 like this.
  5. Mark Mosley

    Mark Mosley Member

    Where can I find the discussion that you are referencing by Don Kaufman? I have been trying to trade the bearish butterfly strategy, however I do not have Optionview, only think or swim. I understand the greeks between the two platforms do not agree. Thanks.
  6. Rick

    Rick Active Member

    Mark: look in the Capital Discussions library. There was a round table with him that was recorded for replay.

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