{"id":8951,"date":"2020-09-08T15:57:00","date_gmt":"2020-09-08T19:57:00","guid":{"rendered":"https:\/\/ibkrcampus.eu\/trading-lessons\/ibkr-risk-navigator-calculating-the-forward-prices-for-options\/"},"modified":"2024-01-25T16:14:58","modified_gmt":"2024-01-25T16:14:58","slug":"ibkr-risk-navigator-calculating-the-forward-prices-for-options","status":"publish","type":"trading-lessons","link":"https:\/\/www.interactivebrokers.eu\/campus\/trading-lessons\/ibkr-risk-navigator-calculating-the-forward-prices-for-options\/","title":{"rendered":"Using Risk Navigator to Calculate Forward Prices for a Single Option and Option Combinations"},"content":{"rendered":"

The TWS Risk Navigator is a powerful tool and can be used to calculate the likely forward price of single options and option combinations. In this video we will go through how to use the Risk Navigator what-if custom scenario feature to make assumptions on the forward price of an underlying and implied volatility to measure the potential price of an option and combination on various days leading up to expiration.<\/p>\n

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Let us start by going to a Watchlist I previously created with options and combinations on it.<\/p>\n

To bring up a new Risk Navigator What If right-click on an option and scroll down to display What-if. A Risk Navigator What-if display will populate with just this single option. Notice that the border of the Risk Navigator is Red indicating it is in edit mode.<\/p>\n

To access available columns, go to the Metrics Menus. Scroll down to see available column areas. Choose the metrics you want, and the available columns will show.<\/p>\n

I recommend adding in the following position risk columns: Delta, Delta Dollars, Gamma, Vega, and Theta<\/strong> if they are not already selected. You are now displaying market prices and associated values.<\/p>\n

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We will now bring up the custom scenario by going to the view menu at the top of the screen and scrolling down to custom scenario. This will replicate the market scenario with a custom scenario on the right of the screen.<\/p>\n

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You can adjust the underlying price, the option volatility for the expiration, and even set a final settlement price. Let\u2019s walk through a few scenarios to see how they affect the price of the option.<\/p>\n

I have selected a long call option<\/strong> for our first example.<\/p>\n

The aim here is to learn the premium of the option by first increasing the price of the underlying by $15 and second, reducing the reading for implied volatility by 15%.<\/p>\n

Let\u2019s first adjust the underlying price.<\/p>\n

There are 3 choices: Explicit Value, Change, or Percent Change<\/strong>. We will increase the underlying price by typing $15 into the box underneath price, changing the type to \u201cchng\u201d. Note that whenever you edit any inputs here, the font will remain red until you apply the change. Click \u201cApply\u201d.<\/p>\n

The value of the option has increased reflecting the change in the underlying. This can be seen in both the data table and the plot. I\u2019ll now reset the scenario editor and adjust the volatility by lowering it 15% to show the effect on the option pricing. You can now see how the premium of the option has declined for a reduction in implied volatility.<\/p>\n

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We will now go through some examples using a strangle combination. From the Watchlist we created click on a strangle. We can choose to either add it to the existing What if that is open or open an entirely new one just for the combination. We will open a new one. I\u2019ll make some exaggerated adjustments to emphasize the changes and point them out on both the plot and the table.<\/p>\n

Examples using Strangle Combination<\/strong> <\/strong><\/p>\n