6. Options and the volatility desk

Building a position (OSA)

OSA turns several option legs into one position and shows its value at any stock price, date and volatility, with breakevens, maximum profit and loss, and the combined Greeks.

5 min
3 questions
Lesson 2 of 2

Why you would care

What happens to this trade if the stock moves, time passes or volatility changes? Real option trades often have several legs: buy one call, sell another; buy a call and a put together. Their combined behavior is hard to see in your head. OSA draws it, and shows the two curves that matter: the value at expiry and the value today.

The idea from scratch

A strategy (or spread) combines legs: each leg is an option (or stock) that you buy or sell, with a quantity.

Three classic shapes:

Strategy	Legs	You want
Bull call spread	Buy a call, sell a higher-strike call	A moderate rise, with capped cost and capped profit
Long straddle	Buy a call and a put at the same strike	A big move either way
Covered call	Own the stock, sell a call	A flat or slightly rising stock; you collect premium, give up upside

Gloom screenshot: Payoff at expiry of a bull call spread — Payoff at expiry of a bull call spread: buy the 100 call at 5, sell the 110 call at 2. Net cost 3: maximum loss 300 dollars, maximum profit 700, breakeven 103. Illustrative numbers.

Two curves to keep apart:

At expiry
the hard-edged payoff, only intrinsic value left.
Today (or at a chosen date)
a smooth curve, because the options still have time value. It moves toward the expiry shape as days pass.

The position's Greeks are the sums of the legs' Greeks: they tell you the trade's sensitivity to price (delta), to movement (gamma), to time (theta) and to volatility (vega).

Diagram: Legs: buy/sell, strike, expiry, quantity leads to Value each leg; Value each leg leads to Payoff today and at expiry; Value each leg leads to Sum of Greeks; Payoff today and at expiry leads to Scenario: move the date, shift volatility.

See it in Gloom

Gloom screenshot: OSA AAPL, Payoff tab — OSA AAPL, Payoff tab: a long straddle. The orange V is the payoff at expiry; the white curve is today's value. Historical example.

open ittype OSA AAPL, then a to add a leg, or c to pick from the chain (or press a on a contract in OMON). d changes the scenario date, v shifts volatility. Tabs: Payoff, P&L grid, Legs.

Spot 341.46, Value 630.34: the position's current value.
Max loss 380.50, Max profit Unlimited: a long straddle costs its premium at worst; a big move either way has no cap.
Breakevens 338.70, 346.31: at expiry, the stock must end outside this range for the trade to make money.
Theta -109.25 per day: the position loses about 109 dollars a day if nothing moves. That is the price of being long gamma (Gamma 10.260).
Vega 23.86 per pt: it gains about 24 dollars per point of implied volatility.
The chart: orange is the expiry payoff (the V); white is today's value, smoother and above it because time value remains.

Practice and recap

Try it3 tasks

In the bull call spread chart, what is the profit if the stock ends at 106? ((106 - 100) - 3 = 3 per share: 300 dollars.)
In the screenshot, how much does the straddle lose over a week if the stock does not move? (Roughly 7 x 109 = 765 dollars, and a little more in practice, because theta grows as expiry gets closer.)
Which shape would you build to profit from a big move without guessing direction? (A long straddle.)

Common mistakes4 mistakes

Reading only the expiry payoff and ignoring today's curve.
Forgetting the multiplier: Greeks in OSA are already in dollars for the position.
Selling options for premium without seeing the unlimited loss on the chart.
Assuming American options behave exactly like the European pricing here (early exercise around dividends).

Check yourself3 questions

What is a leg?
Why is today's curve smoother than the expiry payoff?
What do the breakevens of a long straddle mean?

Answers

One option (or stock) line, bought or sold, inside a multi-part position.
Because the options still have time value before expiry.
The stock prices at expiry beyond which the trade makes money; between them, it loses.

Words in this lesson7 words

strategy (spread): A position combining several option legs.
leg: One option or stock line in a strategy.
bull call spread: Buy a call, sell a higher-strike call.
long straddle: Buy a call and a put at the same strike.
covered call: Own the stock and sell a call on it.
scenario: A chosen date, price and volatility to value the position at.
P&L grid: A table of profit and loss across prices and dates.

Educational material about reading market data, not investment advice.