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How to Analyze Trades on ThinkorSwim I Risk/Profile for Beginners (Step-by-Step tutorial)
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Dec 17, 2022
The risk/profile page within ThinkorSwim allows you to analyze the risk on your positions as well as hypothetical trades you're considering putting on. It gives you a visual representation of exactly how you will make or lose money on a give trade. Within the tab you can adjust inputs like stock price, time, and volatility to uncover your resulting profit/loss on the trade. You can also manage your position greeks and analyze the effect of a new trade before putting it on.
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Hey guys, welcome back to the Thinkorswim tutorial series. In today's video, we're going to be
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covering the risk profile page on Thinkorswim. Now, if you're new to the channel, here we cover
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everything finance and investment related, whether it be platform tutorial videos, investment news
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as well as diving into my personal portfolio each week. And we'll be going over my weekly returns
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from dividends, appreciation, and short option selling. So if any of that interests you, please
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go ahead and hit the subscribe button down below. Now, for those of you that have never used the
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risk profile page before, it really makes it easy to yze your current positions or hypothetical
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trades you're considering. Now to access the risk profile page, all we need to do is click on the
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yze tab at the top. From there, we're going to click on the risk profile sub tab. And from there
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we can see that we're yzing right now an Apple position. So we can see we've got Apple up here at
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the top. I can see all of my current positions on Apple down here below. So you can see that I've
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got 20 shares of it, as well as one short 117 put expiring the 19th of March. Now jumping right into
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it, let's explain what these two lines are up here at the top. Now the blue line is the date of
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expiration line, while as the purple line defaults to today. Now all these lines are showing us is a
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visual representation of how much we're going to make or lose with the stock price moving one way
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or the other. So for example, right now I'm just yzing my short 117 put. Now we know that to
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make max profit on this trade, we need Apple to close above $117 a share on the date of expiration
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which is where this blue line plateaus appear at the top. We can see that if we put our mouse up
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there and then we train our eyes to look in the lower left-hand corner, we can see that it says
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on March the 20th, if Apple is at $117.21, we'll be at our max profit of $111. Now the purple right
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above it is telling us that on March the 7th of 2021, if Apple were at $117.19, we'd actually be
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down $237.09 on this trade. Now moving our mouse left to right actually adjusts those number for
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us so we don't have to do the math. So moving our mouse to the right, we can see that my mouse is
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currently at $123.12. And on the date of expiration, we're still at max profit $111. But today, if that
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were to happen, if Apple were to go up to $123.12, we'd only be down $27 on this trade. Now, if we
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move our mouse to the left, we can see it going against us because this trade is a short put. We
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want the stock price to either stay the same or go up. We know that the stock price going down
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actually hurts us. So again, on the date of expiration, if the stock were to go down to $112.36
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we would be down $352. But if that happened today, March the 7th, we'd actually be down $519
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So again, just a little recap, the blue line is the date of expiration line
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whereas the purple line, which is again default to today, is still pricing in time and volatility to those contracts
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So by moving our mouse left to right, all we're doing is manipulating the stock price of Apple to come out to a value
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How much will we be up? How much will we be down if Apple is at a specific price on a specific day Now you can also change some other inputs on this page because right now all we doing is changing the Apple stock price by moving it left to right Let say we wanted to change the date We said what happens if Apple is at its current price but a week from now March the 14th
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So let's go ahead and adjust the calendar down here in the bottom right hand corner where it says March the 7th. We're going to click on that calendar and make it March the 14th. Now it may
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not have been that noticeable but that purple line did move up. So now when we put our mouse up there
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we can see that if Apple is at the current price it is right now, $121, let's say $52
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we can see that we'll be up $27. So we are now pricing in one week worth of time decay into
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these contracts. Now the blue line will not change because remember the blue line is the
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date of expiration line. There is no more time. There is no more volatility being priced into the
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contracts at that point. But the purple line can be adjusted, whether it be time, which we've
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already talked about by adjusting the calendar in the bottom right, or the next one we're going to
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talk about is volatility. Now to price in volatility changes, all we have to do is click
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on the gear icon in the bottom right hand corner. From there, you're going to see two boxes pop up
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The one we're going to be focusing on is called volatility adjustment. And in our case, we're just
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going to price in an aggressive vol crush. We're going to price in a 20% volatility decrease. So
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negative 20. And we'll go ahead and hit enter on our keyboard. Now, again, the blue line did not
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change at all, but that purple line did move closer to the blue line. So now if Apple were at
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121.49, it was a week from now, March the 14th, and volatility decreased by 20%, we can see that
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we'd already be up $100.46 on this trade. Now, if we were to hold it all the way through expiration
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again, max profit 111 because we are above that short strike. Now, we went over that very quickly
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so let's do another couple quick examples. First off, let's go ahead and change this back to 0%
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and we'll change the calendar back to today, get everything reset, and let's go ahead and put on
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a couple hypothetical trades. So we're going to go over to the trade tab. We're going to pull up
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Microsoft because I don't have any positions on Microsoft right now. Let's go ahead and pretend
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we wanted to put on a long call spread. So we're going to buy the 235 and we're going to sell the
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240. And we can see the order ticket down here. That's a long vertical call spread. And we're
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going to go ahead and right click on that order ticket anywhere on the green and then say yze trade. Now from there, we can see the risk profile on this spread. If we were to put our mouse up
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here at the top, let's say Microsoft is at $238.99 today versus the date of expiration. If Microsoft
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were to go up to $238.99 today after putting on this spread, we would be up $108.51 on this trade
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But if we held all the way till expiration, March the 20th, we would be up $226.08 on this trade
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Now, let's say we were really fortunate and Microsoft were to go up to $244.26
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If we held it all the way to expiration, we would be at our max profit, $327
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versus today, if it were to go up to 244, we be up So just looking at that we can tell by holding this long call spread time is a really big component Even if we think Microsoft is going up if we put on this spread we need to know that we got to hold it for a fair amount of time to actually make that max profit But let go ahead
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and see how long we'd have to hold it to get a lot closer. Let's say Microsoft can say it's
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let's say Microsoft could stay roughly $238, but we wanted to see how long we'd have to hold it to
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get roughly $200 in profit. So we're going to go ahead and manipulate the calendar down here
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Just click on the plus sign until we see that purple line cross up above 200
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And we can see that we really have to hold it all the way till expiration if we only think it's going up to 238 to get that near $200 profit
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Now, just for practice sake, let's go ahead and manipulate the date. And let's say it's a week from now
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Again, March the 14th. Now we can put our mouse up there again and see how time decay will affect this spread
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spread. So let's say again, it's at 238.94 on March the 14th. We can see that we'd be up $115
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on this trade. And by expiration, we'd be up $221. And then finally, let's go ahead and play
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with volatility one more time. We're going to say, actually, there is a 10% increase in volatility
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Go ahead and type in 10 and hit enter. And we could see how that purple line adjusts. And in
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this case, if it's at 238, we gave up a little bit of our value from that vol increasing. Now
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the spread is only going to gain us $98 if it were to go up to $238. So again, that's how you
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can manipulate time. That's how you can manipulate volatility and the underlying stock price to come
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out with a expected profit or loss by a given time. Just a really cool way you can see your
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theoretical profit, theoretical loss before you actually put on the trade. Now, some other
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background info. If you see this gray shaded area in the background, all this is is the standard
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deviation. So with a high degree of probability, let's say one standard deviation, 68.27%
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there's a high degree of likelihood that the stock will stay between 219 roughly
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and 245 by the date of expiration. Now, if you wanted to widen that out, make it a two standard
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deviation, we could come up here, adjust it to two standard deviation, and we can see that widens
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out to 207 and 259. So there's a 95% probability it'll stay within that range by expiration
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Now the dash lines in the background, these yellow dash lines, all those are your price
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slices, which can be accessed in the lower left-hand corner by clicking on price slices
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From there, we can see that the original price slice, the one in the middle, is really just
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the current stock price for Microsoft in this case. And the price slice above it is a 5% up move, and the price slice below it is a 3% down move
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And by looking on the right-hand side, we can see what that would result in profit or loss-wise
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So if the stock were to move up 5% after we put on this trade, we would be up $184, whereas
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if it moves down 3%, we'd be down $102 on the trade. Now, this is also where you can really
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micromanage your Greeks Like right now we got a delta of 16 on this trade So it a bullish trade which makes sense It a long call spread and we losing about a day due to time decay But let say you wanted that
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delta to be more neutral and you wanted your theta number to actually be positive. You'd be making
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money. Now, in order to do that, neutralize your delta and increase your theta, we're going to be
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selling some call spreads just as an example. So let's go back to the trade tab. We're going to go
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ahead and sell some call spreads against this. We're going to do the 235 by 245. Now, I can't
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imagine any situation where this would necessarily make sense to do this, but we're just doing it for
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practice's sake. We're going to go ahead and right click on this and say yze trade. And we can see that our delta has been neutralized at least somewhat. And we also have a positive
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theta of 10.8, but we can see that this kind of reverses our entire outlook on Microsoft. So again
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this wouldn't really make sense, but I just wanted to show you how you can manipulate your
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Greeks up here before actually putting on a trade, assuming you were trying to hit certain
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delta metrics. This is how you could do it. Now let's do one more just for practice's sake. We'll
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pull up the trade tab. We'll go over to Netflix in this example, NFLX, hit enter. Let's say we
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wanted to put on an iron condor. So let's go ahead and sell the 520 by 525 and the 510 by 505
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creating an iron condor. We'll go ahead and right click on this, say yze trade. And there we go
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we can see the risk profile page for an iron condor on Netflix. We can see exactly where we're
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making our max profit, which makes sense. That's between our two short strikes. So in this case
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that'll be between 510 and 520. As long as Netflix is between those two values, we get to make our
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max profit of $465. And if we were wrong and Netflix were to skyrocket, let's say we're to go
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up to $532, we can see that our max profit in this trade is only going to be 35 bucks. And same thing
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to the downside, if Netflix were to go down to $499, again, we can see our max loss is $35
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Now, we can also see our expected profit or loss on, we left the date in there, March 14th. So
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if Netflix were to go to 506.82 by March the 14th, we'd actually still be up $56.42 on this trade
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Now, I understand this page can be very confusing when you're first getting started. So, if you
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miss anything, please re-watch the video. Otherwise, if there's anything you'd like me to focus on
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maybe go more in depth on, please let me know down in the comments and I'd be happy to come it
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