How much do you trust the numbers they show on the Analyze tab on ThinkOrSwim? I analyzed a credit ratio backspread yesterday on LVS, as an earnings play (Long 20 $95 puts, short 10 $100 puts): using their software they showed for today a low breakeven point at $102. Today the breakeven point is around $95. The potential profit for a big drop (to $90 for example) is still the same but there are big differences in the $95-$105 area. This is the first time I see such a difference. Could it be because of pre/post earnings volatility? You would think that it would not make a difference in this situation as both puts would be affected and anyway the software does not take into account earnings, just theo values. Did this happen to someone else? Is the tool in Options Express more reliable?
Are you talking about real time p/l on the analyze tab or are you referring to calculations at expiration? I have access to options xpress stuff, but I mainly use TOS for my option trading.
A model is just a model. The numbers that come from a model are correct, but it's not the model that determines what the position will be worth tomorrow, but what the input variables will be. So if the volatility changed then so will the option values. In other words, if you model under constant volatility and volatility changes then the numbers you get from a model won't match the real situation. A ratio spread or a backspread is not vega neutral so changes in IV will affect it.
I am not talking about real time data, but about projections. I have noticed that these can be off even only one day later, when IV has not changed much. I have noticed also that OXPS sometimes does not show the same projections as TOS.
The differences between various theoretical models are minor, it is the inputs that determine the output. As I said in a previous post, theoretical projections are based on certain assumptions and when those assumptions turn out to be wrong the projections are off. Don't try to find a flaw in the model rather look for flaws in your projections/assumptions.
MTE, Thank you for your help. What kind of flaw could there be in my assumptions as I am just buying the spread based on TOS quotes?
A flaw...the most basic "flaw" is the constant volatility assumption, i.e. modelling based on the assumption that the volatility will not change. Anyway, I can't really say much without knowing what sort of a position it is and what you are trying to model.
If all parameters were entered correctly, there's no way that the position will have a $7 difference in break even from yesterday to today due to IV change. Either the software is inaccurate or you made an error in your entries.
Candeo, Two words: Implied Volatility Ask your question on Live Support or call in please. They will explain it to you. Why are you asking this here anyway, when ToS offers so much in the way of information and help. Good Luck mate.
It may also be relevant that, at the time the OP posted his message, the underlying stock had dropped $5 or $6 from the previous day's close.