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Options allow the investor to exploit equity market direction. Options Level 2 provides investors with the ballistics to better manage the risk reward outcomes associated with exploiting market direction.

Options Level 2 is the current genesis of an ongoing collaborative effort by user community, academics, investment professionals and software engineers and hard forged in the intense creative competitive furnace of America's independent software industry. Please take a moment to scroll and review descriptions of the features that traders from a broad range of backgrounds have found so useful and why Options Level 2 has become an important addition to their trading tool set.

A successful strategy, regardless of trading style, expertise or edge requires an understanding of what the market will deliver for an option when the moment to close or exercise arrives. The market is a moving target. To score a hit is as much a function of good assumptions as it is reliable forward spot (speed x time) assessments. Options Level 2 is a powerful, easy to use, reasonably priced no nonsense tool that reliably and accurately provides those very necessary forward spot prices.

Reliable forward pricing requires accurate, at the tick. market data. Options Level 2 takes advantage of a free market option chains service provided by the Chicago Board Options Exchange, or CBOE. As CBOE chains are read then parsed into Level 2, implied volatility, break even points and conversion and reversal yields are priced for each leg in the chain. Chain pairs, or straddles can be routed to Level 2 implied forward price models or saved to Level 2 Portfolio for periodic mark to market assessments.

The choice is simple. Trades can react to market surprise as an exit strategy. Or, trades can anticipate outcomes based on predetermined risk / reward preferences.

Modules and Features: Put Call Parity * Spot Price Analyzer * Prices (free) CBOE Market Chains * True American Implied Volatility * Implied Forward Pricing * Closed Form and Decay Pricing Models * Convergence Pricing Model * Mark to Market Portfolio * Time Step Resolution to the Day * Price Step Resolution to the Penny * Sticky Delta * Sticky Theta * Conversion and Reverse Conversion Yields * Win Loss Color Coded Peg Thresholds * Break Even Prices * 80 3 Dimensional (time/price/value) Interactive Point Click and Price Charts * Back Testing * User Driven Design * Free Upgrades * No service fees.

The features and flow diagram visually summarizes Level 2 modular integration. The single arrow lines indicate the direction that information can be sent from one module to another. The information passed can be a line item in a view or data in edit fields or a chart legend. Right click menus and toolbar buttons make passing information from one module to another quick and easy. The CBOE Parser, for example, will pass option information from market chain options to all Level 2 modules. Level 2 is a stateless interface. This means that any, or all, the modules can be present on the display surface and interacted with.

Access to Level 2 features using the main screen, (spot) Price Analyzer, tool bar and menus allows for single and concurrent tasks with little to no effort. A single right click is sometimes all it takes. There is a detailed description of the menu and tool bar services available through all Options Level 2 modules here.

The CBOE Parser helps establish a web link to CBOE pages to facilitate downloading of near tick option chains and CBOE Historical Volatility's (HV). Historical volatility measures the noise of movement in price of the underlying stock. Implied volatility is a function of the price the option is trading at. Level 2 uses historical volatility to calculate a forward price smile "rate" for pricing sticky delta and sticky theta. The sticky values are used to produce Level 2 decay model simulations.

Decay simulations write forward the actual market premium of the option being priced by factoring through theta and delta. Closed form models use derivative methods, like Black Scholes, to model, or forecast option pricing using the implied volatility of the options being modeled.

Convergence Model simulations assess a forward spot price using the mean of the sum of a forward closed form spot and the corresponding forward decay spot. The Convergence Model is a blend of closed form and decay pricing models.

The CBOE Parser Features image above emphasizes the IV features as well as the conversion and reversal yield features. The HV is supplied by the CBOE and is set when the CBOE chain is imported. Option straddles, or call put pairs are forwarded to the implied price model that follows when a right click menu for a selected option pair on the CBOE Viewer is raised.

As shown in the image above there is a lot of information associated with a given straddle's Level 2 forward priced simulations. All matrices are calibrated by stock price steps horizontally and date steps vertically. Price and time steps can be resolved as tightly as the penny and the day. The call leg is priced in the top view and the put in the lower. The tabs for other data being modeled are synchronized. For example, should the model resolution reflect single day time steps with 10 cent price steps, the smile and skew matrices will be calculated to single day steps and 10 cent spreads for price steps.

The green red color coding can be set to reflect risk reward tolerances or preferences. For example, a 10% setting for the loss threshold will highlight price and time step pegs when premium losses are within 10% of the current market premium.

Many of our competitors offer Smile and Skew (kurtosis fattail - bottom center of image above) charts. Not many, however, render them spatially to accommodate time steps, and even fewer may offer point click and price features. The four charts offered by the Implied Forward Pricing Model are fully synchronized with the model matrix.

The models can be configured through a right click menu, or the Price Model Control Console below.

In addition to the information supplied in the caption for the above image, the Speed Bump, or price step filter that sets the column header values for the available tab matrices in the pricing model, can, in addition to the auto increment feature, be used to designate a price for a specific column.

The following three images below compare closed form simulations to decay simulations. The closed form model used is the BSA 2002 American Pricing (Bjerksund and Stensland 2002 Model). The decay models were rendered using the (sticky) Theta Delta w/o Acceleration model.

An observation based on the 15 day, 22 day and 33 day simulations below indicates that for the interest rate used for these back test samples, and near the money strikes, that closed form simulation model in the market about three weeks out, while decay seems to do a better job outside 3 weeks out.

It is important that the interest rate used match those for treasuries, LIBOR, or other risk free COFI rates of similar duration. For example, a 3 month option expiration should use a 3 month LIBOR rate. Two sources for risk free interest rates are Bankrate.com and the Financial Forecast Center.

The 15 day back test comparison above used a Jun 23 CBOE chain option pair (model is green on green) to peg call and put premiums targeted to a Jul 8 market chain (target is blue on blue) with the stock bid at 99.98. The closed form model pegged “in the market” for both the call and put at the target date and price.

The 22 day back test comparison above used a Jun 4 CBOE chain option pair (model is green on green) to peg call and put premiums targeted to a Jun 26 market chain (target is blue on blue) to the stock bid price of 105.32. The results are mixed. The decay model at left pegged the call slightly below the market but missed the put. The closed form model, on the right, missed the call but pegged slightly above the market for the put. Again, these models used a guess for the interest rate and modeled off the bid.

The 22 day back test comparison above used a Jun 4 CBOE chain option pair (model is green on green) to peg call and put premiums targeted to a Jun 26 (actual) market chain (target is blue on blue) with the stock bid quote at 105.32. Our backtesting indicates the market, using the default model settings, favors of Level 2 Convergence Model during the 4th week out (21 to 29 days out from the prospective open). Options Level 2 Convergence Model asseses the forward spot as the mean of the closed form and decay forward premium spots. The Convergence model above at left pegged the call at the market and the put in the market. The decay model at near right was near but below the actual call and was off the put. The closed form model, on the far right, missed the call but pegged (slightly) above the market for the put. Again, these models used a guess for the interest rate and modeled off the bid.

The 33 day back test comparison above used a Jun 19 CBOE chain option pair (model is green on green) to forward peg call and put premiums targeted to a Jul 22 market chain (target is blue on blue) at the target’s stock ask price of 115.98. In the previous two models, the back test chains stock price was higher than the stock price of the target chains. In other words, the stock price declined. In the 33 day model above, the back test stock price is lower than the target date price. The stock advanced. The results favor the decay model. The decay model at left pegged the put in the market and the call slightly below the market. The closed form model, on the right, missed high both the call and put. Again, these models used a guess for the interest rate and modeled off the ask.

The charts in the image above offer a graphical comparison of a closed form price simulation (top) to a decay model (bottom). The slightly elevated green scale represents price steps at the zero gain / loss demarcation. The blue horizontal scale is the time step scale, while the red is the dollar value of the contract ROI. The closed form model gradually slopes to zero return while the decay model curves more radically to the price / time relation.

The Portfolio Markup to Market Chains image above demonstrates Level 2 mark to market feature. Level 2 Portfolio manages cost information for options stored there. The options can be actual opens, or test options to time test strategies. Options offer two opportunities to reap a positive return. One is the close value, or the profit above to the cost to open the option and it’s sell to close value through trading it back to the market. The other is the savings on the acquisition cost of the option’s stock through exercising the strike. The mark to market report indicates profitable positions in green and losing positions in red. The P/L reflects the total return for the number of contracts held, while the percentage columns indicate the relative gain or loss.

Options Level 2 Price Analyzer is a leg spot price calculator. It is also the main start up screen. All Level 2 Modules are requested through the price analyzer. The Analyzer also offers 12 embedded standard Greek charts in a scrollable viewer as well as the Behaviors screen with additional sensitivity Greeks and charts for over night currency traders. Level 2 price stock options, indexed options, futures and currencies.

The CBOE Fair Value to Market Value ratios are use in conjunction with pint click and price charts and offer an alternative method to assess quoted market trades based on strike to stock ratios and market to HV fair value ratios.

The image above highlights the information offered by the Behaviors screen and Level 2 interactive 3 dimensional charts. The high resolution chart (top) offers 1681 point and click data points. As the data points are clicked, the chart legend updates to reflect information and balances related to that point. The handicapping, or synthesizing chart (bottom) offers 400 data points as well as graphical controls to attenuate for stock price, strike, interest rate, carrying rate or dividend yield and volatility. It also presents both American and European prices. The charts render resulting wave forms in real time – they almost seem to breathe! Bogus or synthetic options keyed through Level 2 Price Analyzer can be sent from the charts, through the chart right click menu, to Options Level 2 Implied Price Model.
Options Level 2 charts are spatial time, market and price charts. While the Level 2 Implied Price Model assesses the closing value of the option, the chart provide an understanding of the exercise value. Pressing the [Ctrl] key with the left mouse down will rotate charts to your visual preference. Clicking data points on chart surface updates the chart legend (above image).

When you’re ready, come back and buy Options Level 2. We are offering it NOW at a fantastically low price. Don't wait. This price represents substantial discount to the catalog price. If you are a member of a trading club or blog, email us and we'll send you a link to buy at a discount.

Don't short yourself. Buy Options Level 2, while you can, at this onetime only price!

Options Level 2 is a user driven idea. Our marketing philosophy is that Option Level 2 users and our development staff are a team. We plan to release enhancements, free of charge, semiannually, based on user feedback and our appreciation for the craft.

Become a member of our team and the Options Level 2 community. If you have any questions, please, give us an opportunity to answer.

Terry Thurber - 7010 Napier Ln - Houston TX 77069 - 281.397.8895 - Contact