Learn how three trading tools and services can help newcomers and veterans alike with trade selection and risk management.
Are you new to options trading? Do you have a potential options trade idea but you're not quite confident enough to pull the trigger? Since it may be unwise to put on a trade that you're not confident in making, you may be on the lookout for a tool, or maybe even an advisory service, to help you get that needed boost. Here is a potential tool for TD Ameritrade clients: the Risk Profile tool in the thinkorswim® platform.
If you already have an option trade in mind, you can use the Risk Profile tool in the thinkorswim platform to analyze and stress-test your trade idea. After logging into the platform, click the Risk Profile tool under the Analyze tab. You can visualize a trade’s potential P/L based on different factors including changes in the price of the underlying stock, implied volatility, and with the passage of time. See figure 2.
FIGURE 2. SCENARIO ANALYSIS WITH THE RISK PROFILE TOOL.
Analyze a trade with the Risk Profile tool on the thinkorswim platform. For illustrative purposes only. Past performance does not guarantee future results.
If you’ve ever wondered what your trade might look like in one week’s time, with the stock up 10% and the implied volatility down 10%, this might be the tool for you. For example, you can tweak the components of an option trade, from a single option to a multi-legged strategy (such as the iron condor in figure 2). You can play around with strike prices, expiration dates, price changes in the underlying stock and more. Or scrap your potential strategy altogether and analyze a different one.
If you’re not quite ready to dissect an iron condor, the TradeWise advisory service can help guide you through different option strategies. For a fee, TradeWise will serve up advice, real-time trading ideas, and even specific trade recommendations. If you’re brand new to options trading and don’t even know where to start, then having a risk defined trade idea land in your email inbox can really help shorten the learning curve.
Even if you consider yourself a more seasoned trader, seeing the methodology veteran floor traders use to initiate and manage trades can be enlightening. There may be some things you’ve never considered, or never been aware of. In addition, if you have a TD Ameritrade brokerage account, trade recommendations can be automatically entered into your account by setting up Autotrade*. (Note: standard commissions and fees apply).
Remember, just because the trade ideas are coming from an advisory service does not mean that they can't lose. Options trading involves significant risks, including risk of loss and is not appropriate for everyone. Regardless of where a trade idea comes from, have a plan and only trade what’s appropriate for your objectives and risk tolerance.
Whether you consider yourself a greenhorn, a cagey veteran, or somewhere in between, there’s a tool that can perhaps show you something new, or help give you the boost of confidence you might be looking for.
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Content intended for educational/informational purposes only. Not investment advice, or a recommendation of any security, strategy, or account type.
Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.
TradeWise strategies are not intended for use in IRAs, may not be suitable or appropriate for IRA clients, and should not be relied upon in making the decision to buy or sell a security, or pursue a particular investment strategy in an IRA. Options involve risk and are not suitable for all investors.
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*Autotrade is a service provided by TD Ameritrade that automatically enters trade recommendations you receive from TradeWise and other third-party newsletter providers into your TD Ameritrade account. Autotrade is available at no additional fee. There are subscription fees for the third-party newsletters and all trades initiated via Autotrade are subject to your individual commission rates and fees as a TD Ameritrade client. TradeWise recommendations cannot be executed in IRAs through the Autotrade service. The Autotrade service is only available in select TD Ameritrade accounts. Please contact TD Ameritrade for more information, including eligibility requirements.
Market volatility, volume, and system availability may delay account access and trade executions.
Past performance of a security or strategy does not guarantee future results or success.
Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.
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