Options Leverage Ratio Column For ThinkOrSwim

[StoneMan]

I created a column that displays how many dollars you will have to spend to obtain one share worth of leverage on an options contract. Options are all about leverage and trying to align that leverage with your risk profile and trade sizing. I wanted to know exactly how expensive that leverage was.

# Options Leverage Ratio
# StoneF
# 05.24.2023
# V1.0

def OptionPrice = close;
def UnderlyingPrice = close(GetUnderlyingSymbol());
def Delta = Delta();
def Gamma = Gamma();

# The units of the following metric are dollars per contract share.
# This measures how much money you need to spend for one share of leverage on an option contract.
# Would reccomend using in conjuntion with implied volitility.
# It should be noted that the units of Delta are technically $/$ (unitless) and Gamma 1/$
# A .5 delta equals a 1$ change in the contract for every 2$ of change in the underlying
# (1 / delta) flips this ratio to look at the change in the underlying per change in the contract
# Gamma: .05 gamma can also be written as 1/20$.
# (1 / gamma) is simply written as dollars
# Understanding this is key to understanding how this calculation works

Plot LeverageRatio = (UnderlyingPrice * OptionPrice * Gamma)/Delta;

By removing options price from the equation we can get a new measurement unit I refer to as leverage units per share. In reality the numerator is unitless and the actual units are 1/share. This tool can be used to show where you can achieve the highest leverage in a way that you can compare to other instruments. Spoilers, the meme stonk options really don't give you much. Compare those to something like microsoft and understand that you are paying up for leverage.

# Options Leverage Units
# StoneF
# 05.24.2023
# V1.0

def OptionPrice = close;
def UnderlyingPrice = close(GetUnderlyingSymbol());
def Delta = Delta();
def Gamma = Gamma();

# The units of the following metric are 1/share, I like to think of it as leverage units per share.
# This measures how many units of leverage an option gives you in a way that can be compared across underlyings.
# Would reccomend using in conjuntion with implied volitility.
# It should be noted that the units of Delta are technically $/$ (unitless) and Gamma 1/$
# A .5 delta equals a 1$ change in the contract for every 2$ of change in the underlying
# (1 / delta) flips this ratio to look at the change in the underlying per change in the contract
# Gamma: .05 gamma can also be written as 1/20$.
# (1 / gamma) is simply written as dollars
# Understanding this is key to understanding how this calculation works

Plot LeverageUnits =  (UnderlyingPrice * Gamma)/Delta;

 

[StoneMan]

This a script that can easily identify your option with the maximum convexity in the chain. A higher number is more convex. It follows a parabolic pattern across the chain.

# Maximum Convexity Identification
# StoneF
# 05.25.2023
# V1.0

# Individual option Ivol would be superior as it more accurately reflects the relationship with Vega
# This is close enough though, the output results are good
def UnderlyingIVol = imp_Volatility(GetUnderlyingSymbol());

#Multiplying Greeks by 100 to normalize them
def Delta = Delta()*100;
def Gamma = Gamma()*100;
def Vega = Vega()*100;

# The following metric is unitless and based purley off the Greeks and IVol
# The highest score in the option chain is the point of maximum convexity
# This is usuallay around 25 delta for calls and 30 delta for puts
# On the option chain this takes the shape of a parabola
# The parabolas peak is the point of maximum convexity
# The parabola flattens as time to expiry increases
# It should be noted that the units of Delta are technically $/$ (unitless) and Gamma 1/$
# A .5 delta equals a 1$ change in the contract for every 2$ of change in the underlying
# (1 / delta) flips this ratio to look at the change in the underlying per change in the contract
# The units of Gamma are 1/$
# Gamma: .05 gamma can also be written as 1/20$.
# (1 / gamma) is simply written as dollars
# Vega measures the sensitivity of the option price to a 1% change in the implied volatility.
# The units of Vega are The units of vega are $/σ.
# To normlize for IVol Vega will be multiplied by the IVol of the underlying, leaving the units as $.
# Gamma being 1/$ leaves this unitless
# Understanding this is key to understanding how this calculation works

Plot LeverageRatio = Vega*UnderlyingIVol*Gamma/Delta;

 

[StoneMan]

Here is a more direct dollar per dollar comparison.

def Delta = Delta();

def OptionMarkPrice = close;

def UnderlyingPrice = close(getUnderlyingSymbol());

def Leverage = (Delta * UnderlyingPrice);

def LeverageRatio = Leverage / OptionMarkPrice;

plot LevRatio = LeverageRatio;