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Author: Morris Puma

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Options Trading Business

Options are very complex; there’s no doubt about it.  However, business fundamentals are simple, and options trading is simply a business.

To be successful in business, the Golden rule is, buy low and sell high over and over again, and options trading is no different. If you are consistently doing this process backwards, then your business will never be successful.

How does an options trader buy low and sell high?

In order to buy low and sell high, the options trader has to identify over and undervalued options. Without the ability to do this, the options trader cannot execute the fundamental business model of options trading. Unfortunately, by the design of most options trading platforms, the majority of option traders do not have a method to identify over and undervalued options. Without the ability to identify them, how can one expect to run this business successfully? How can you possibly purchase a low-priced option, if you cannot even locate it?  So, this is the problem the entire options trading industry is facing today, but fortunately for option traders, this problem has been solved by our company, OptionColors. Welcome to a new world.

OptionColors is single-handedly changing the entire options trading industry through its revolutionary approach to extracting key information and presenting it to option traders in a simple format. A huge benefit of OptionColors is that it identifies over and under valued options quickly, and it builds option spreads around this powerful information.

Consistency Builds Accounts

By allowing traders to consistently build their option spreads with built-in value, OptionColors facilitates “options trading as a business.” Through consistent recognition of value, business is possible. Without it you are shooting in the dark.

Imagine the comparative results of operating a business with and without this technology. Without it business profits are minimized, if success is achieved at all. For those who can consistently buy low and sell high, business will run smoother and profits will come much easier. Many option traders are doing this process entirely backwards, over and over again, and they do not even know it because this information is hidden from them.

You can't buy what you cannot see

If you can’t locate a good price, you can’t take advantage of the opportunity. This is what is happening to most options traders today. Imagine running a retail store and stocking inventory. If you are paying too much to stock your shelves, then how do you expect to make a profit? By paying too much for inventory a store-front will not see success, and neither will an options trader. This is one reason why businesses go out of business. Competitors undercut their pricing because they have better tools to locate real value in their market.

Optimize your business for success

OptionColors has the tools you need to find value in the markets. Whether you trade SPX or TSLA, it doesn’t matter. It only takes a few seconds to know which options to buy and sell with OptionColors technology. This is what OptionColors is all about – a platform designed to help every option trader achieve his/her maximum level of success.

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Tsunami vs Traditional Backtesting

Backtesting stock options has been around since options trading began in 1973, but the methods of backtesting are constantly evolving. In this article we’ll be discussing the differences of traditional backtesting and the instant backtesting in OptionColors’ Tsunami, a patent-pending feature. 

Traditional Backtesting

One of the oldest well-known options trading platforms is Optionvue, founded in 1983 by Len Yates. Len was one of the first pioneers in the industry of options trading software.

Optionvue, which still exists today, contained one of the first manual backtesters for options traders. A user could change the data of the option chains to the past, build trades and move dates forward to paper trade a few months of time within hours. This method later appeared in other options software with slight variations and progressed with modern-day designs.

Although this form of backtesting was helpful, it was very time consuming. One could spend weeks of time to gather some basic information.

Automated Backtesting

Starting around 2010 automated backtesting tools began to surface around the net. Charting software became readily available to the retail developer, which led to more advanced options trading tools.

This was a significant time in history for the stock market because, what used to be entirely controlled by brokers, became a market place full of software developed by smaller companies. Now, there are hundreds of stock market related programs available to the retail trader, some as powerful as hedge-fund tools, which have been kept secret for so many years.

Although there are many different automated and manual options trading backtesters on the market today, they all have one thing in common.  They build an options trade at a past date, using historical data and then move the date forward, again, accessing historical data.

Problems with Traditional Backtesting

There are lots of benefits to backtesting, but there are also some problems with it that traders are not always aware of.

Historical Trades vs Future Trades

One problem with backtesting is that the historical trades that are tested are not the same as potential future trades a trader will face. There are many variables that could be different, rendering the backtest irrelevant to the future.

For example, let’s say an options trader wants to backtest an iron condor strategy. A typical method could be to backtest the iron condor over a lengthy period of time such as 5 years. The user will create a set of rules, such as starting each trade at 30 days out from expiration, along with some adjustment parameters.

After the test, the user has an idea of how the iron condor strategy performed for that period of 5 years, according to the data used and rules applied.

The problem is that moving forward, the trader may never trade the same iron condor again because there are many variables that are forever changing. In the future, the underlying may never be trading at the same price, same volatility level, same news, same fundamentals, same traders behind the ticker, same price or volatility action, same management of company, etc. The same DTE and deltas of the trade may not be available either. Since the same iron condor will not be traded in the future, it’s debatable if the backtest is really helpful to a trader. This is one reason why all software and brokers use disclaimers about limitations of backtesting and how it relates to future performance. 

Curving the data

Another common problem with backtesting is fitting the backtest into the historical data, so the outcome is better than reality. Although people do not intentionally curve their data, it happens because traders naturally want to make their trading systems the best they can be. 

With manual backtesters it’s too much work to create enough backtests to not curve data. With automated backtesters it’s tough too. It’s easy to miss a day or two with automated backtesting tools that would drastically change the backtest results. Automation makes things faster, but current solutions are still not quite there.

Tsunami™ Invention by OptionColors

OptionColors provides clients with multiple methods of backtesting. We have manual backtesting, automated backtesting and our Tsunami invention, which performs the industry’s first “real-time” backtest. Let us explain.

Real-Time Backtesting

Instead of rebuilding a totally different trade than the client’s current position at a past date, the Tsunami invention (patent-pending) brings past price moves to the current date, to instantly backtesting the user’s real positions. Since OptionColors tests the position in “real-time”, we believe our method of testing a position is far superior than any other method to backtest, since we test the actual position and not a very different one.

One-Second Testing

Not only does OptionColors test the true position, but testing of many years, is done in less than one second on average, making it the world’s fastest “real-time” backtest.

Now, a user can test the correct delta, correct underlying price, correct IV level, all with a single mouse click. There’s no need to apply irrelevant backtests to one’s trades when you have access to Tsunami.

Does Not Skip Over Max Drawdowns

Unlike traditional methods of backtesting, Tsunami does not “skip over” any max drawdowns, which helps the “curving data” issue. Every price-move is included in the tests, so not a single large or small price move is missed. In tradititional backtesting, large drawdowns are often-times skipped entirely, skewing the results to a positive outcome, but Tsunami shows things how they really are – yet another reason our invention is a superior method to backtest options positions.

Test Unlimited Strategies

Another improvement upon traditional backtesting is that Tsunami can test any position whatsover, where automated backtesting cannot. Tsunami has no limits. Create and instantly backtest any stock and options positions in one second.

Calculates Statistical Probabilities

Tsunami not only performs a “real-time” backtest, but it also calculates statistical probabilities, making the traditional POP method obsolete.

OptionColors’ clients love Tsunami – the new industry standard.

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One Click To Build A Volatility Trade

As innovators in the field of options trading we work hard to bring the most powerful options trading analytics to the world, and at the same time, we do our best to make the building of complex options positions an effortless procedure. We save our users countless hours as they trade, and as they say, “Time is money.”

OptionColors Brings One-Click Trading To Industry in 2012

A little history for you – We started working on OptionColors way back in 2008 under its first name, SJ Troo™, where we built the first version of our one-click, automated earnings backtester, which is still the world’s fastest. This method comprised pre-built trading models, so the user did not have to construct any trade at all, saving the clients some serious time during their backtesting efforts. What would take weeks in other platforms, took only seconds in ours.

In 2012 we extended our pre-built trade model methodology to other parts of our platform, allowing users to build numerous trades with our single-click technology. Users could build such trades as singles, credit spreads, ratios, unbalanced spreads, time spreads with just a single click of the mouse.

Our methodology saved clients tremendous time, but that was not the best part of our technology. Our approach also included other patent-pending processes, which built the trader optimized volatility trades with AI technology, compared them all, and sorted the best trades to the top of the list.

Footprints of our Technology

Approximately a year and half after we posted an image of our single-click trade builder online, our technology began to appear in other software.

One popular platform that boasts our technology is the Tastyworks platform. Named Dough back in 2013, the platform came out with a very similar trade builder, which made their software nearly an instant success. Did Dough really pioneer this single click technology? We think not.

In fact, the Dough/Tastytrade/Tastyworks team is one of our most attentive followers. They have called us by phone asking about our patents, they follow our Youtube videos vigorously, and they are on our mailing list.  

In addition to the single-click trade design, the Tastyworks risk profile also resembles our design, which came out years after ours, and they even adopted our adjustable IV Rank concept in 2018, again, after we posted ours on Youtube. It’s too common for larger companies to copy the work of the smaller ones, taking credit for their ideas.

We are flattered by all the attention, really. When the industry’s most recognized companies create derivative works of your own, then you know you are doing something special.

Look Beyond the Surface

Although brokers have created some derivative work from OptionColors, their users do not get the same benefits. In fact, the Tastyworks single-click trade builder lacks important criteria that we invented to help traders make money, which means their single-click method is really just a fast way to lose money. Yes, the platform provides one-click trading building, and it looks similar to our original 2012 SJ Troo design, but the Tastworks builder does not build optimized trades. It appears similar at first glance, but in reality, there is no comparison.

It comes down to this. Brokers make their money when traders send orders through, and they make money by lending traders money. That is their business model.

OptionColors One-Click Builder Benefits Options Traders

We never liked the traditional option chain. It’s really antiquated by now, and our invention of the one-click complex trade builder let us bypass the chain entirely.

It’s not only a headache to build trades from the chain, but the trader does not benefit by doing so. That design is obsolete.

OptionColors efforts have ultimately changed the way options are being traded throughout the industry. Brokers are trying to follow our footprints with derivative, but inferior products.

More often than not, derivative works do not capture the true technology of the original authors. OptionColors’ instant trade builder compares hundreds of trades for a user and highlights the best ones, trades that are highly optimized for a trader’s success. There is a huge difference between building untimely trades fast and building highly optimized trades fast – no comparison really.

Software such as Tastyworks does not have the technology to help traders profit, only to place random trades; it helps their business model. That’s nice for them, but it could also mean a faster way to lose money for the client.

Trade Assistant™ by OptionColors

The original single-click options trade builder

OptionColors uses patent-pending technology to create highly optimized options spreads for users with a single click. No other platform in the world can build options trades with such logic.

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Investools Replacement

TD Ameritrade Closes Investools

So, Investools was closed down by TD Ameritrade.  Lots of people are complaining about being left out in the dark. Well, we are here to say, “Don’t worry because it’s truly a blessing for you.”

Pricing Off The Charts

Investools options mentoring program and stock/options analytical website was one of the most expensive offered, totaling about $20,000 to attend their live seminars, a boot camp and access all of their programs. Investools referred to this coveted package as the PHD program.

Chart Patterns

Investools taught their clients to trade by chart patterns. Statistically, chart patterns do not generally work. Their students believed and followed their advice, but was it ever really tested?  

Chart Patterns Tested

We coded a script to backtest the accuracy of most popular chart patterns, and results demonstrated that the majority of them do not predict direction with any degree of accuracy. One pattern, the triple top, tested better than most, but it’s very rare, so it’s not so useful to active traders. The most common patterns proved to be unreliable.

Big Chart

Big Chart was neat idea, but the application was for equity trading, not options. For options trading that method presents additional risk. If a trader is constantly switching from ticker to ticker, they never master their products. Secondly, options are very complex. One cannot simply trade by price-action alone. Options involve volatility, time and Greeks.

3 Green Arrows, Marketing, Marketing, Marketing!

There’s nothing wrong with marketing, and Investools was great at it. Yet another great advertising piece – enter a trade with 3 green arrows! Catchy idea, but did it help traders profit consistently? If you break down the 3 green arrow system, again, it was designed for equity trading, not options.

Stop & Go™, Much Better

Our platform, OptionColors™, comprises patent-pending technology to give traders ideas related to entry and exit signals, which we call Stop & Go™.  Our logic is designed specifically for options trading.  It’s far more logical than the stock-related 3-green-arrow concept that was discontinued. 

Volatility

That is where the money is at, but TDA did not teach it correctly, and the Investools toolbox did not contain beneficial tools to profit from it. The 52-week IV Rank was all you would find, and that technology has been around since 1973. Like most software today, the toolbox was recycled technology with a new interface applied.  Again, there is nothing wrong with that. It makes a good business model, but it’s not so effective for options traders.

For us, volatility is our passion.  We have numerous pending patents related to volatility, and we keep working on our volatility tools each day. There is an entire world to explore in that arena.

Over Under™ Technology

OptionColors™ Over-Under™ technology shows option traders over and under valued options, which are invisible in other platforms. Investools toolbox never helped a trader locate which options to buy and sell because they never had the technology – it did not exist with Investools, nor TOS. OptionColors has it, and has had it for almost a decade already! Our Over-Under™ technology has been time-tested and refined. We have the industry’s best.

Backtesting

Investools website did not provide clients with proper backtesting tools. Sure, Thinkorswim has an antiquated one, but OptionColors has the fastest backtester in the world. We are fascinated with backtesting, and we’ve been automating it since 2008. Our platform comprises 3 types of backtesters. Traders need to save time and get information instantly, so that’s what we provide to them.

Portfolio Margin

PM can be fantastic, but one has to have the right tools and information, especially related to the risk models, to trade it. OptionColors is the premier platform to learn how to trade PM because we have higher order Greeks and the volatility tools needed to analyze risk more accurately. Without proper options analytics it’s not safe to trade portfolio margin.

Strategy Optimization

Investools software could not create an optimized options position for a trader. Their trades were built on poor logic and technology. OptionColors uses highly sophisticated, patent-pending methodology to build intelligent, optimized trades for option traders. We also use AI to help us when we can.

Higher Order Greeks

Investools did not provide higher order Greeks to traders. OptionColors provides all important higher order Greek charts to clients, helping them manage trades like true risk managers.

So yes, we know some of you are feeling miserable and super bummed out that you lost your Investools toolbox, but it’s not such a bad thing when you think about it. If you lost your access to those tools, don’t worry. It wasn’t so great after all. OptionColors™ is a far better solution. Explore our website, get a demo and keep on learning.

Investools Replacement is Here

Investools replacement is right here.  OptionColors has all the tools that Investools never had, and we don’t provide the unnecessary tools they did have. No fluff, no loss of time, just tools options traders need to trade smart. Buy hey, we did keep the good looks that Investools clients got used to. In fact, maybe OptionColors is a just a little bit better looking : ). You be the judge.

With OptionColors patent-pending technology, one can put volatility to work each day.  Put probability on your side by having the ability to see over and undervalued options, which are invisible in traditional software.

Instantly backtest any options strategy to see if you like your scenario. Use statistics to calculate probability, use higher order Greeks to manage vega, buy low and sell high over and over again. Use Stop & Go™, yes like the 3 green arrows, to enter and exit trades!

Instead of Big Charts, we have more beautiful charts, ones that you really need to trade options. If you are open to a new approach built on innovative logic, one that has all the colors and curves of the toolbox, but has much better logic, then OptionColors is the new options software you are seeking.

This blog only touches the tip of the iceberg when it comes to our options trading platform. In a nutshell, we think you’ll love it. You have to try out OptionColors to really appreciate it.

S-POP™ by OptionColors

OptionColors uses patent-pending technology to create probabilities from statistics. Know your probability to make an exact amount of money in an exact amount of time. Make more educated decisions and trade smarter. Make the first move, and let the markets come to you from now on. OptionColors is not just another options trading platform, it’s a lifestyle.

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Why Higher Order Greeks

Higher order Greeks are an essential part of options trading and analysis. The fact is, lower order Greeks such as deta, theta & vega can be managed by higher orders, but the average options trader does not have the knowledge or tools to do so.

A Full Suite of Higher Order Greeks Tools

OptionColors offers clients a full suite of the most important higher order Greeks via various charts, making their usage very intuitive. Along with the visuals, we provide clients with instructional videos on the tools.

Every options trader should analyze their positions with higher order Greeks. Software without this level of risk management puts traders at a huge disadvantage.  

OptionColors has included higher order Greeks in its application for nearly a decade now, giving us time to refine our tools, to provide clients with easy-to-understand charting, even though the concepts are very deep.

An Example of Managing Vega

Profits and losses are made from volatility changes, which is directly correlated to one’s vega position. Vega is managed by higher Greeks such as vomma and vanna. If a trader does not know how to manage vega, then they are at risk to potential volatility changes, instead of putting these changes to their own advantage.

A great example is the short strangle strategy. Most options traders do not know that it comprises poor vanna and vomma attributes, 2 critical components that severely affect the vega position. The vega position of the short strangle is very dangerous to options traders, but without awareness of the higher order Greeks involved, options traders are putting themselves in harms-way. Unfortunately, this leads to many margin calls and account blow-ups.  

In a nutshell, here’s what happens to a short strangle when volatility increases. The negative vega position, already exposed to an increase in volatility, quickly gets worse (becomes more negative), losses snowball, margins increase (when trading portfolio margin) and ones account is often-times wiped out instantly.

OptionColors propels traders to higher levels, helping them develop to their maximum potential as an options trader. Options traders should be using higher order Greeks when they trade. The concepts are a bit complex, but so are options. It comes with the territory.

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S-POP Revolutionary Method of Calculating Probability

POP (probability of profit) has been a common term used in the options trading industry for decades. It’s a method to calculate a probability of profit of an options trades based on the current implied volatility of an underlying asset.

While this method has been “sticky” for such a long time, it has never proven to be a valuable method to calculate its own name.

POP False Assumptions

The POP method makes assumptions that are clearly false:

1.  It assumes that the probability of an underlying of moving up or down at every given moment is exactly the same, a 50/50 scenario. This is statistically wrong.

2.  It assumes that the implied volatility of the underlying will not change or assumes a trader can accurately input its correct future change into the POP calculation. This is emphatically wrong.

3.  It assumes that the risk of an options trade is acceptable within the probability zone, and that the options trader can utilize the entire POP zone. This is not realistic whatsoever.

 

S-POP™Method, Patent-Pending by optioncolors

S-POP™ (statistical probability of profit), a patent-pending invention by OptionColors, Inc., is the next-generation probability calculation method for options trading, making POP obsolete. Instead of relying on the current implied volatility and false assumptions that go along with it, S-POP™ is a method of probability based purely on statistics.  Software that uses the POP method is outdated, which is pretty much all options platforms on the market today, except for OptionColors.

With OptionColors’ S-POP™ method a user can apply statistics to any options trade for a more realistic probability calculation. A user can create S-POP™ based on seasonality, price moves, various volatility levels and much more.

S-POP™ In Action

If you have access to typical options software, then you know that standard POP, is used to superimpose a price range over a risk profile. Price ranges such as 68% for 1 standard deviation, 95% for 2 and 98% for 3 standards deviations are very common. It’s nice to see the price ranges based on current implied volatility levels, but that is all you get with the old-fashioned POP risk-analysis method.

Our invention, S-POP™, is much more robust, flexible and provides options traders with several realistic risk-modeling models. Our clients say it should be the next standard risk modeling method for the entire industry.

S-POP™
Calculate statistical probabilities & instantly backtest any options strategy

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