Option Portfolio

The Option Portfolio window runs off a sophisticated back-end algorithm that mathematically optimizes an options portfolio using the defining criteria and constraints that you enter, along with relevant economic criteria. To open the Option Portfolio window please take the steps outlined below.

1. For Mosaic - Click the New Window button in the top left corner and select Advanced Option Tools > Option Portfolio

   For Classic TWS - Click the Trading Tools button across the top of the page and select Advanced Option Tools > Option Portfolio

2. If you don’t see Option Portfolio in the tools list, expand the hidden items using the arrow at the bottom of the menu.

3. The Option Portfolio window opens and you’re ready to define the query. To add a tab with another underlying to the Option Portfolio window, click the New Tab "+" icon.

   

The Option Portfolio algorithm works within the user-defined query constraints, and evaluates the comprehensive options market data (including bid and ask price and size) to minimize the sum of the following, and find the lowest cost solution:

• Cost to execute, as represented by the bid/ask spread for each option in the Query Results list, specifically:

  (ask - bid) x (contract multiplier) x quantity

  summed over all orders in the Query Results list.

• Commission charged to fully execute all orders in the Query Results list;

• Cost to hold the Query Results list for a given period of time. This term is only relevant when the Hold until date is set to a value other then the current date. In this event, the holding cost is calculated as:

  [(option value on “hold until” date) - (solution order price for the option)] x (contract multiplier) x (signed quantity)

  summed over all orders in the Query Results list.

The algorithm continues to work and reevaluates the solution in the Query Results list every 30 seconds until the user submits the order group for execution, freezes the updates to evaluate the solution in more detail, or changes the query criteria.

Next: Define and Submit the Query

Define the query by entering the quantity of the risk dimension you wish to acquire, and setting optional specifications such as time slicing and randomization, last trading day and strike range, and an underlying reference price range and Hold until date. You can also elect to create a Reference Portfolio and have the Option Portfolio query an optional portfolio with the same or better P&L. To do so, please take the steps outlined below.

1. Select the desired objective, i.e. Acquire 2000 Delta...

2. For the greeks, enter the position quantity you’d like to acquire.

   • The position quantity is equal to:

     greek value x position x multiplier

   • For example, 20 long call options with a delta of .4989 would show a position Delta of approximately 1000. The position Delta calculation is:

     .4989 x 20 x 100 = 997.8

3. Define any optional query parameters.

   

4. Add other constraints if needed (see Constrain the Query Results).

5. Submit the query by clicking the Submit Query button.

Optional Query Parameters

Note: To trigger the query from a Risk Navigator alarm, press the Risk Navigator button.

Next: Constrain the Query Results

Option Portfolio allows you to constrain the query results in the risk dimensions other than the objective dimension. So, if your goal is to achieve a specific Gamma position, you will be able to constrain the resulting Delta, Vega and Theta. The algorithm imposes the following default constraints:

For example, the default Delta constraint ensures that the Gamma and Vega of the Query Results solution are positive.

To override the system defaults, enter a value in one or multiple input fields and click Submit Query.

Next: Evaluate the Solution

Freeze updates to the query to evaluate the solution, and use the IBKR Risk NavigatorSM to see how implementing the option portfolio will affect your current risk profile. To stop the algorithm from updating results, please take the steps outlined below.

1. Click Freeze Updates to keep the algorithm from reevaluating and displaying new solutions.

   Note: The data will continue to tick but the Query List will remain unchanged.

   

Next Step: View What-if Risk in the IBKR Risk NavigatorSM

You can view the risk summary for the proposed Option Portfolio solution list in the IBKR Risk Navigator, and add your existing portfolio to the What-if to see how acquired Greek risk dimension will affect your existing risk profile.

To view the solution list in Risk Navigator, please take the steps outlined below.

1. Click the Risk Navigator button to open a What-if scenario that contains the Query Results list.

   

2. The What-if is indicated by a red border around the portfolio, and is named “Option Portfolio.”

3. Select any Report or Measure to see the isolated risk profile for the list.

4. You can also view the proposed solution list integrated with your current portfolio risk profile. Simply add your portfolio to the What-if scenario from the Option Portfolio.

   

To add your portfolio to the What-if scenario, please take the steps outlined below.

1. From the Edit menu of the Risk Navigator, select Add From.

2. Your actual portfolio, named My Portfolio, is the default selection. Click OK. If you have created other portfolios, you may select another from the list.

3. The positions in your portfolio are added to the What-if scenario from the Option Portfolio solution list.

4. After you elect to Add your portfolio, the two sets of positions are summed in the new, integrated What-if Portfolio.