Options Chain Metrics
When reviewing options contracts in Composer, you’ll see a variety of metrics to help you evaluate potential trades. These metrics are designed to give you insight into how a contract is priced and how it may behave in response to market conditions.
Price Metrics
These values reflect recent trading activity for the specific options contract:
- Mark: This is the midpoint between the bid price and the ask price. This is often used as a fair-value estimate of the contract's price.
- High: The highest price the contract was traded at during the most recent trading day.
- Low: The lowest price the contract was traded at during the most recent trading day.
- Previous Close: The price of the contract at the previous trading day’s close.
- Last Trade: The price of the last trade for a specific contract.
These data points can help you assess how active a contract is, where it’s currently priced, and how volatile it has been during the trading day.
The Greeks
Under the price metrics, you’ll also see another set of metrics called “The Greeks”. “The Greeks” are theoretical values derived from options pricing models. They estimate how the value of an options contract may change in response to various factors.
- Delta: A measure of how much an option's price is expected to change for every $1 move in the underlying asset's price.
- Example: a delta of 0.50 means the option's price is expected to increase by $0.50 if the underlying asset increases by $1.
- Gamma: Measures how much the delta is expected to change when the underlying asset moves by $1. Gamma helps assess how stable the delta is over time.
- Theta: Estimates how much an option’s price will decline each day as it approaches expiration, assuming all other factors remain constant. This is known as time decay.
- Vega: Estimates how much the option’s price will change for a 1% change in implied volatility. Options are generally more expensive when volatility is high.
Understanding the Greeks is important when evaluating how an option might respond to changes in market conditions, time, and volatility.
Volume Metrics
When you initiate an order, you’ll also see the Bid, Mid, and Ask prices. These are volume metrics that traders use to evaluate liquidity, activity, and interest in an options contract.
- Bid: The highest price a buyer is willing to pay for a contract.
- Ask: The lowest price a seller is willing to accept.
- Mid: The price halfway between the bid and the ask.
Performance Profile
Lastly, you’ll notice a graph under your options buy preview that shows the Max Loss, Breakeven, and Max Profit for a buy order.
- Max Loss: The maximum potential loss for the trade if the option expires worthless or moves against your position.
- Breakeven Point: The price the underlying asset must reach at expiration for your position to result in neither a gain nor a loss.
- Max Profit: The maximum potential profit you can realize from an options trade. Certain strategies, like buying calls, offer unlimited profit potential.
If you're new to options trading and want a deeper dive into how these metrics affect your strategy, you can reach out to our support team with questions. Our team is available at help@composer.trade!
Disclaimer: Options trading involves significant risk and is not appropriate for all investors. Prior to buying or selling an option with Composer Securities LLC, please read the "Characteristics and Risks of Standardized Options," also known as the Options Disclosure Document (ODD). You can access the ODD by clicking here. Options transactions are often complex and can expose investors to potentially rapid and substantial losses. In some cases, you may lose your entire investment in a relatively short period. Furthermore, certain complex options strategies carry additional risk, including the potential for losses that may exceed your original investment amount.