Volatility in CQG
Seasoned options traders focus on implied volatility. You may have the direction of the underlying contract correct, but if your estimate is incorrect about what implied volatility will do while you hold the position, then you will still face a potential loss.

With the Volatility Workshop, you can adjust the characteristics of an options-implied volatility curve to appraise how those alterations affect the theoretical values of either an individual option or a portfolio of options. You can modify either the implied volatility for a single options series or the entire volatility curve.

The volatility curve can be modified by a horizontal shift, vertical shift, horizontal shape, vertical shape, and slope. CQG offers two ways to modify each aspect of the volatility curve either by dragging the curve and adjusting it directly in the window, or by entering numbers in the modifications table.

The minimum and maximum percent volatilities specifications can be set through the Modification table.

The 3-Dimensional Volatility Workshop offers the same analyses as the 2-dimensional display but provides a more in-depth view of the interactions between the variables over time.

Spread Building Strategies
An option has a number of attributes that traders monitor. This feature leads to traders building simple and complex trading strategies. For example, traders track the rate of time decay, change in the delta, interest rates, and the rise and fall of implied volatility. These attributes are referred to as the Greeks.

Then, there is the impact of the price movement of the underlying instrument on the price of the option. Since options have various strike prices and expiration dates, traders create simple to complex spread strategies that exploit changes by these attributes. 

For these traders, CQG offers the Strategy Analysis module. This module provides everything a trader needs to analyze the current value of any option strategy including spread strategies. The trader can also perform what-if analysis by varying the Greeks and time to expiration. 

The module has seven different options models for pricing. There are 43 pre-built strategies as well as the abiltiy to design your own. Once designed, you can save the new strategy. All strategies come with detailed layouts displaying the details of the position and real-time data is used. Analysis and results can be displayed in tabular or graphical formats. In addition, there is a 3-dimensional view which allows you to rotate around the three axes.

Evaluating Strategies
Traders can perform what-if analysis to gauge the theoretical behavior of an option strategy. The Strategy Analysis module can aid in developing best- and worst-case scenarios. The scenarios are presented in either graphical or tabular form.

More than just long/short a call or put, many strategies are listed, and any strategy can be customized and saved:

• Long or short
• Butterflies
• Boxes
• Calendars
• Delta Neutral
• Ratios
• Straddles
• Strangles
• Synthetics
• Verticals
• Intermarket spreads

The option strategy may be analyzed by varying price, time, volatility, and interest rate. The graph displays theoretical profit and loss, or any of the Greeks on the Y-axis, and the underlying price or other variable on the X-axis. The graph is an effective visual aid to estimating the behavior of the option strategy as the variables change.

The current characteristics of the strategy are detailed in a table format, such as the Greeks, breakeven points, and contract details.

The Greeks
An option model is used to measure the characteristics and how they can vary for an option. Options models are also used to estimate implied volatility and theoretical value; and performing “what-if” scenarios.

There are seven option models used in each of the five CQG modules:

• Black Model
• Black-Scholes Model
• Bourtov's Model
• Cox-Ross-Rubinstein (Binomial) Model
• Garman-Kohlhagen Model
• Merton Model
• Whaley (Barone-Adesi-Whaley Quadratic) Model.

You control the properties of the models. First, you have two choices for data for calculating volatility: traded implied volatility or momentary volatility. Next, you can select the iterative process used to arrive at the implied volatility. CQG offers you four iteration methods for arriving at the implied volatility: Newton's method (using vega), the secant method, binary division, and the combined method, which melds the secant and binary division processes.

You can choose from among six volatility choices: Volatility surface (from the 3-D volatility workshop module), volatility curve (from the non 3-D volatility workshop), implied volatility, average volatility, and historical volatility, all calculated from market data. Users can also opt to use a constant volatility

You can select the currency and interest rate used for the options calculations.

Options Window
Attention to details is paramount for the options trader. CQG offers the Options Window to provide a clear presentation of the necessary information so the trader is aware of the changes occurring in the options markets as the price of the underlying instrument fluctuates.

The option widows display in a column format the last price of the options, volume, open interest, theoretical value, theoretical value versus underlying price, delta, implied volatility, gamma, theta, vega, and implied volatility.

The option window also displays the underlying price, number of days until the designated expiration, expiration date, default volatility, and the default interest rate.

You can view the individual Greeks over a series of expiration months for both puts and calls, or pick one contact and see all of the Greeks for the one contract.

Options Graph
The Option Graphs module is a visual display of the Greeks of either the calls, puts, or both of a series of options. You can plot:

• Volume/Open Interest
• Tick volume
• Delta
• Gamma
• Theta
• Vega
• Implied volatility