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How to Model Options Contracts

The HiddenLevers toolkit supports the modeling of options. The best way to do this is to create a Share quantity portfolio and enter the actual number of options contracts you have. However, percent allocated portfolios also support options contracts.

In the portfolio editor, click the blue "Options" button to view the options entry window:

Here, you can enter the details of the option.

Underlying Symbol - The ticker you are writing the option on.

Option Type - Is the option either a Call or a Put?

Strike Price - What is the strike price of the contract?

Expiration - When does the option expire?

Repeat this Option - By default, options are repeated to properly calculate expected return. You can adjust the parameters of repeating option here.

# of Contracts - How many contracts are you buying? Each contract represents 100 shares. To sell an option, enter a negative number of shares.

When you hit Submit, the option will be added to your portfolio. If you entered 10 contracts, it will show up as share quantity of 1000.

Now, if we stress test this portfolio, we can see the protection our Put contract provides when the S&P falls 10%:

 

A few additional things to note:

HiddenLevers uses Black Scholes to model the price of the option.

For the ticker symbol, our system uses a traditional shorthand to refer to each contract. If you want, you can enter options contracts directly into the symbol column following the same logic. The general format is [Symbol][Expiration Date YYMMDD][C or P][Strike Price]. In the above example, it is SPY180621P250.