Lesson Overview

Leveraging the "Analyze" Tab

With options trading it can sometimes be hard to visualize a trade's profit and loss diagram. Using the "Analyze" tab on thinkorswim has been a huge game-changer for us (and many other traders) because we are able to build and mold strategies instantly like never before. Here I'll show you how to quickly add simulated trades and hedges to any position you are interested in taking in addition to walking through some of the basics on using the analyze tab.

Show Video Transcript +

Thank you so much for watching another one of our tutorials. In this video, I want to spend a lot of time going over the analyze tab. The analyze tab for me has been a real, real help on Thinkorswim platform.

I can only speak for Thinkorswim. I know a lot of other brokers have something very similar, so you just have to check out your individual broker’s platform.

But we’re going to be strictly dealing with the TOS platform today because that’s what I use and that’s what I at least recommend to everyone that does trading with me.

But the Thinkorswim analyze tab has been a real help for me over the last couple of years because it allows me to not only look at new trades before I even place them and understand a little bit better about my risk and reward and my breakeven points.

But it also really helps me analyze adjustments that I’m going to be making to trades that might be going against me or just a regular adjustment or a roll to a next contract month, something like that that you really don't have a good understanding of the profit and loss diagram until you actually go in there and take a look at it.

That's what we’re going to do today. I have just a blank profit and loss diagram up here today. We’re going to go over just a couple of different examples and look at a few things. There’s a zillion thing you can do on this.

Yes, there’s a zillion thing you can do on this platform, but I want to cover some of the better or bigger ideas today, and that will hopefully get you started in using the analyze tab going forward for your trading.

The first thing that I want to cover is just understanding the basics of what the analyze tab is, so what is it comprised of. The first thing that it has is “add simulated trades.” That’s up in the top left-hand corner of the screen.

When you add simulated trades, basically what you’re doing is you’re placing orders like you had a trade, but it's not money, it’s simulated. This is really good because you can add simulated trades to current trades once you have a current position in and I’ll show you that here in a little bit of RUT.

You can add simulated trades to that current position and get an idea of what the risk and loss diagram would look like if you had made an adjustment or added a certain contract or whatever.

The other tab that I use is the “risk profile” which we’ll be looking at a lot tonight, and that’s the profit and loss diagram. A lot of other brokers have something very, very similar to this. I know tradeMONSTER and TradeKing have these, I know optionsXpress has one.

I know there’s a ton of them out there that have something very similar that you can look at the risk profile or the profit and loss diagram of a spread or a calendar or a condor or whatever the case is right here in the platform. But this is helpful to me.

I typically spend a lot of my time here on the risk profile, and that’s what we’re going to do in this video. Then besides that, we have “probably analysis” which we more or less cover in the first video in this bonus series, and that is the projection curve or probability distribution curve.

We have the “think back” tab where we can go back in time and back-test some strategies, and then we also have a “fundamentals” tab which if you’re really into fundamentals, you can take a look at that as well.

But like I said, I spend most of my time in the risk profile tab which we’re in right now and then looking at simulated trades. To quickly go through a lot of just the semantics and setting up of this, it’s usually setup pretty good just right from the beginning, but a couple of things to highlight.

One, you have the symbol up in the top left-hand corner. That’s pretty self-explanatory. Besides that, you want always to want to look out at one or two expiration months out. That will give us (when we start seeing some charts on here) a profit and loss line at expiration, and that's different because you have a profit and loss line that is a daily profit and loss line.

But as you know, strategies and profit loss line start to mold and bend with time decay, volatility, Delta, etcetera and they start to form what we typically see when we look at a strategy as a profit and loss at expiration.

Then finally, over in this right-hand corner (and hopefully you can see all of it) is our probabilities indicator and that can give us a good indication of where probabilities are within a certain range, by a certain date, etcetera. You can play around with those, increase your probability range, decrease your probability range, whatever the case is.

As we start getting further into the actual chart down below, what you'll see on this chart in a second is we’ll start to throw up some spreads and some iron condors and calendars, and you’ll start to see those probability ranges start to go up there.

What you want to take note of is on the left-hand side, we have the profit and loss at any given point on the chart. It's a very nice X, Y axis graph here. On the left-hand side going up and down is your profit and loss, and the zero barrier is usually always on the chart around the mid-price.

You know that at some point if your chart line ever crosses above that zero barriers, you’re making money and below, you’re obviously losing money. That’s really important to know, and that helps us understand where our breakeven points are as well.

On the bottom-side, you can see all the different price points for the actual stock that you’re looking at. In this case, we threw up COP which is Conoco Phillips, and we have all the different price points out by $1 in Conoco Phillips.

We can see once we throw up a chart here where we would make or lose money given where the stock might go in the future. What Thinkorswim does that makes it easy is that they already put a dotted red line right down the middle of the chart that moves with the market.

As I’m recording this video tutorial, the market is still trading today, and Conoco Phillips is up at 79.84 currently. That's where it's trading, and as it continues to move and trade one way or another, then we'll see a nice movement in this, and that will obviously adjust where our profit loss diagram is in the future.

Down below, we have our price slices which you don’t need to worry about, you can mess with those on your end, and we have our positions or simulated trades down below.

This is where we will actually have all those simulated trades, and we can adjust prices and expirations and strikes right here inside this risk profile section of the analyze tab and that will adjust and move our strategy, so that we can find something that’s real, really easy to use and at least is a better trade than what we might have been looking at before.

That’s the semantics of the logistics of how to layout and look at the risk profile. What I want to do here in Conoco Phillips, I just want to go to the chart real quick, so you guys can see that.

But you can see that we’ve had a huge rally up Conoco Phillips, and I’ve moved my Thinkorswim platform down just a little bit, so you guys can see this top tab stuff which I don’t normally have, but this way, you guys can see me moving back and forth between the Analyze tab and the risk profile.

But right now, this is the chart of Conoco Phillips. We’ve had a huge, huge run-up heading into the end of May here. If you're bullish, bearish on the stock, it doesn’t matter.

But for the sake of this tutorial, let’s just say that you’re bearish on the stock, it’s had a huge run-up and you think it might be time for it to turn around and come down. If we use that as our basis, we’re going to go over to the analyze tab, and we’re going to add a simulated trade in Conoco Phillips.

Let’s just do a very simple vertical spread, so a vertical put spread in Conoco Phillips. What we usually like to do (and we’ve covered these a lot before in videos) is straddle where the market is right now.

Right now, Conoco is trading at around 79.84, so almost 80, so we’re going to do the 82.5/77.5 put vertical spread. When we go ahead and buy that put vertical spread, the 82.5 and the 77.5, that’s going to make a $5 wide spread, and we’re going to pay a little bit over or about $3 for that spread.

Let’s just move it up here to about $3 to make it easy for our tutorial. I can quickly go over and click the risk profile, and you can see that my simulated trade stays down here below.

Up on the chart now pops up this risk profile and it looks exactly like what a debit put spread should look like on your risk profile. It has that nice curvature of the chart.

What this is showing you is it’s showing you exactly where you make or lose money on this trade going into expiration. That red line that we just highlighted here, that’s where you make or lose money on this trade going into expiration.

Each of these different points down below will then correspond to where you will make money if the stock is trading at, for example, 73. If Conoco Phillips goes down and trades all the way down from where it is around 80 down to 73, then we would make about $200 on this trade.

It’s a $5 wide spread; we’re paying about $3 for the spread, so that means our profit max at expiration is about $200. You can visually see that, anywhere below about 78 or so, we make our max profit at expiration.

Conoco Phillips could crash all the way down to $10, we still only make $200 of our max profit at expiration. On the topside, you can see that if Conoco Phillips goes up maybe to say 86, then we lose money because we’re below that zero barriers and we have a max loss of about $300.

You can visually see and track that right here on the chart. It makes it easy to use when you analyze stocks. What I like to do when I use this to analyze things is take a look at where my breakevens are and really, where I make money.

You can see the breakeven is very, very close to where the stock is trading right now. Our breakeven is right about here. That’s where the profit and loss diagram crosses that zero barrier that we talked about before which is right in the middle of the chart and that's where our position starts to make money at expiration.

We’re very, very close. The stock is trading just a couple of pennies above where that is. But let's say for example that you wanted to trade let’s say the 80/77.5 put spread. You trade that one out here. Let’s undo this. It’s about a $1 debit.

Now that you have this 80/77.5 put spread, that’s where you want to trade it, now you paid $1, so it’s a little bit less on price and that's obviously because you’re just moving your strikes out, you’re buying two basically out of the money options.

And now you see that your breakeven price has moved out here just a little bit further, so now you need more or less about a $1 move in the underlying stock even from where it is right now to make money on this trade.

Granted if you get that move, you’re going to make a pretty good chunk of change. You’re going to make about $150, and you’re only risking about $100. But does that necessarily mean that you're making a good trade?

That's obviously up to you. I don't think it is. I think that in this case, you have to make a $1 move down, so you have to be right in the direction before you even start to make money at expiration.

But if you haven’t ever looked at this profit loss diagram in the Analyze tab, then somebody would look at this trade and say, “Hey, you know what? I’m betting $1, and I could make $150 so that to me is a good bet.”

But they don’t look at this and understand that they are putting themselves at a disadvantage right from the start because they need the stock to move down $1 before they even start to make money at expiration.

You can start to see how you can just easily play with these strikes here and get creative in moving your strikes around and trading the stock and molding and creating a position that would fit where the option is trading right now.

Now, we just move it up to the 85, the 77.5, so you can see now our profit loss diagram still has that same shape for the debit spread, but maybe now it's a little bit different. You might have some different risk-reward features in this trade than you would with something else.

Let’s go back and let’s add a calendar spread. Let's say that you don't want to trade the debit spread and you want to go ahead and do a June/July put calendar spread. We’re still bearish on the overall stock, so we’re going to go ahead and buy a calendar.

Where is our calendar? I’m going to go ahead and buy a calendar. Oh, I guess we have to do the calendar for the 75s because they’re not available. There we go. We’re going to easily just delete these other simulated trades right here.

We’re going to go ahead and delete the simulated trade for that put spread and just use that June/July calendar spread that we have right now.

That’s trading right now at about a $.25 debit. We go back to the risk profile, and we compress this graph here and make it a little bit better to see, so you guys can see it at home and now you have what looks like a very easy to understand calendar spread.

It has that nice sloping and peak curve that we have on our charts, and everything focused around the 75 strike. That’s where it peaks out at June expiration because that's exactly where we’re trading those strikes.

Now you can see this is a little bit different strategy. You have less of a debit, so your risk is only capped to about $25 at expiration for June, so you have a little bit less downside risk, but you also still need the stock to move a little bit before you make some money.

More upside risk, less downside risk, but you still need the stock to move, so you have to be a little bit more right in your direction. You could quickly change this up and say, “You know what?

I don't want the stock to move. I don’t think it’s going to move down to 75 by expiration. Maybe it’ll move to 80.” Right here in the Analyze tab, I will quickly change it to a strike price of 80 and re-center the trade over where the market is right now.

What this is saying is that at expiration, if Conoco Phillips were to stay right about 80 that we would make a good deal of money and it’s going to cost us a little bit more to do this trade.

I didn’t adjust that, but it’s going to cost us about $76 to make this trade because it is right in the money and already making money right now at expiration.

You can see that we've re-centered the graph right over the strike price of 80 which is where our calendar is setup and we make some money at expiration, but only if Conoco Phillips trades between basically 79 and 81.5.

It gives us a very, very narrow range to make money and we had to pay a little bit more to get into that trade. But if you don't think that Conoco Phillips is going to go down to 75 which is all the way over here, then this might be a trade that you want to look at.

We’re looking at all hypothetical trades and just running through a bunch of different scenarios so that we can leverage the power of this platform and this system to understand what options strategies we’re making.

If you understand where your risk and your reward is, then maybe you don’t make this trade, or maybe you do make this trade over the other trade, whatever the case is. But by analyzing them ahead of time, then we’re able to make a little bit better decisions going forward.

That was a really good example of just analyzing new trades. Now, let’s look at something where we have a current position. I'm throwing up here RUT, and you can see as soon as I typed in RUT that down below the market, all of our RUT iron condors has popped up. We’ve sold two contracts on each side, we have the 11.10s, and the 11.5 put spread and the 11.40 and the 11.45 call spread.

The RUT right now at the time of this video is trading at 11.33 which is right in the middle of our condor, so we’re doing good if everything stays the same between now and June expiration and we make all of our money on this iron condor. You can see it's got that nice iron condor look.

It's very even on each side. We’re not doing an unbalanced iron condor or a tilted position to one side or another. It’s very balanced and easy. But in this example, let’s say that we want to adjust one of our positions.

If we want to, for example, roll up the put side, so let’s say that RUT continues to test us on the topside, it’s a little bit closer to our call spread than to our put spread and let’s assume that we want to roll up that put side and what would that graph look like if we rolled it up another 10 or 20 points or so in strike price?

What we’re going to do is just leave all these trades on right now because they're live trades, so we can’t undo them right now, and we’re going to go over here, and we’re going to add another simulated trade in RUT.

We’re going to go ahead and roll it up to let’s say the 11.25/11.20 put spread, so we’re going to go ahead and sell those as another simulated trade. Let me move up this chart here, so you guys can see a little bit better.

We go back to the risk profile, and now you see we have this crazy iron condor looking stair-step trade and strategy and that's because we haven't gotten rid of one of the other sides. Right now, we have this trade analyzing and working, and that’s why it’s a different color.

Down here below, you can see it’s a different color because it’s a sell trade and we take in about an 185 credit on this trade. But we know that if we make this trade that we’re going to take off the other put side. We told you that we were going to roll up these 11.05 and 11.10 puts.

Very easily in this platform, you can just uncheck these boxes on the left-hand side of the screen and you can uncheck those boxes and those strategies, or those options will no longer be showing in the risk profile above.

By un-checking those, now we have our new perceived iron condor should we actually make this trade where we enter this new strategy below, we sell the 11.20/11.25 put spread for a $185 credit and then we close out of our current put spread and now we have this new strategy up above that’s a little bit more centered on the actual underlying stock.

It’s a little bit more even on both sides. If that’s something that we want to do, we can at least analyze it at this point right here on the Thinkorswim platform and on the risk profile tab. Very, very easy to just check these boxes over here and see the different charts.

If we go up there, we can uncheck our simulated trade, look at what we have currently for a trade. If we want to adjust the strikes, we just uncheck these. Let’s say that that’s a little bit too close for comfort, so we go ahead and do the 11.20/11.15 instead.

We don’t want to adjust it too quickly or too close, so we just quickly adjust our strikes here. You can see the credit is already adjusting from 185 to 160, making it very, very easy for you to analyze potential new trades or hedges before you even make the trade.

What I often see in a lot of my coaching is that people make adjustments… At least in the iron condor example here, they adjust too far too fast. They do something like this.

They do the 11.35 and the 11.30, and they make something that's tall and skinny. You can see that you just don’t leave enough room for profit potential.

We know the market is going to move, but they make this trade because they took in a big credit and they don't take the time to come over here and look at the analyze tab and see what the resulting position looks like.

Yes, taking in an extra $225 in credit is great, but does your resulting position leave you a window of opportunity to make some money?

At this point, it leaves a very, very small window of opportunity to make some money, about a 10 point range on the Russell which is practically nothing. The Russell can move 10 points in two days.

This really helps a lot of the coaching students that I work with because now when they start using the Analyze tab, now they get to understand and visually see where their strategy is laid out and where they make money and where they don’t and if that really makes sense for whether paying a debit or credit.

As always, I hope you guys enjoy these videos. I know we just basically scratched the surface of the analyze tab. But the whole point of this video was to help leverage what you guys may or may not know about it and at least show you what I do with adjusting new trades and looking at new trades in the analyze tab.

It's been a huge part of why I think I’m successful in this business and why I still want to learn more about strategies and different techniques for adjusting. This is exactly where I do it before I ever place real live orders in the market.

As always, if you guys have any comments or questions, please add them to the membership area in this membership comment box to the homepage of the membership area. I’ll get back to all of those and answer all of your guys’ questions about the analyze tab. Happy trading!

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