The process begins with creating a watchlist containing the options or combinations you wish to analyze. To initiate a custom scenario analysis:<\/p>\n\n\n\n
- \n
- Right-click on an option within your watchlist<\/li>\n\n\n\n
- Scroll down and select “Display What-if”<\/li>\n<\/ol>\n\n\n\n
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- The Risk Navigator will open with a red border, indicating it’s in edit mode<\/li>\n<\/ul>\n\n\n\n<\/figure>\n\n\n\n
The investor could also open a new \u201cWhat-if\u201d from the New Window area and type in the option or options once it is up.<\/p>\n\n\n\n
This initial view displays the current market pricing and associated risk metrics for your selected option. To enhance your analysis, additional risk columns should be added through the Metrics Menu. Essential metrics include:<\/p>\n\n\n\n
- \n
- Delta: Measuring price sensitivity to underlying movement<\/li>\n\n\n\n
- Delta Dollars: Translating delta into actual dollar exposure<\/li>\n\n\n\n
- Gamma: Representing the rate of change in delta<\/li>\n\n\n\n
- Vega: Quantifying sensitivity to volatility changes<\/li>\n\n\n\n
- Theta: Measuring time decay exposure<\/li>\n<\/ul>\n\n\n\n<\/figure>\n\n\n\n
With these metrics displayed, you can now see both current market prices and associated risk values, establishing a baseline for your scenario analysis.<\/p>\n\n\n\n
The investor can access the custom scenario feature by clicking on the \u201cView\u201d menu at the top of the Risk Navigator, scrolling down to and selecting \u201cCustom Scenario\u201d. The Custome Scenario feature splits the screen, displaying the current market scenario on the left and a customizable scenario on the right.<\/p>\n\n\n\n
<\/figure>\n\n\n\nThe custom scenario initially replicates the market scenario but can be modified to model different conditions.<\/p>\n\n\n\n
The scenario editor allows the investor to adjust three critical variables:<\/p>\n\n\n\n
- \n
- Underlying price movements<\/li>\n\n\n\n
- Option implied volatility<\/li>\n\n\n\n
- Date (including dates beyond expiration)<\/li>\n<\/ul>\n\n\n\n
Additionally, you can set a final settlement price to model expiration outcomes. Each adjustment appears in red text until you click “Apply,” at which point the custom scenario recalculates all option values and risk metrics based on your parameters.<\/p>\n\n\n\n
<\/figure>\n\n\n\nPractical Scenario Examples<\/strong><\/p>\n\n\n\n
Scenario One: Single Option Analysis: Long Call<\/strong><\/p>\n\n\n\n
Consider a long call position where you want to model two separate scenarios:<\/p>\n\n\n\n
- \n
- The underlying price increases by $15<\/li>\n\n\n\n
- Implied volatility decreases by 15%<\/li>\n<\/ol>\n\n\n\n
For the first scenario, select “chg” from the “Type\u201d dropdown and enter “$15” in the price field. After applying this change, the option’s premium increases substantially, reflecting the call’s positive delta exposure. The risk metrics also adjust, showing higher delta and delta dollars but reduced gamma as the option moves further in-the-money.<\/p>\n\n\n\n
<\/figure>\n\n\n\nFor the second scenario, reset the price change and enter “-15%” in the volatility field. Upon application, the option’s premium decreases, demonstrating the how volatility contractions can undermine long option positions.<\/p>\n\n\n\n
<\/figure>\n\n\n\nScenario Two: Complex Strategy Analysis: Strangle Combination<\/strong><\/p>\n\n\n\n
When analyzing multi-leg strategies like strangles, the Risk Navigator’s power becomes even more apparent. A strangle\u2014 consisting of a call and put with different strikes in the same expiration\u2014responds asymmetrically to price changes but symmetrically to volatility changes.<\/p>\n\n\n\n
Modeling a 30% price increase reveals how the call’s premium rises substantially while the put’s premium falls, though not proportionally. The net position delta shifts dramatically positively, as visualized in both the data table and the position graph, where the custom scenario (dotted blue line) diverges significantly from the current market scenario (white line).<\/p>\n\n\n\n
<\/figure>\n\n\n\nAlternatively, modeling a 50% volatility decrease shows both options losing significant value, highlighting the strangle\u2019s strong positive Vega exposure. This scenario helps traders understand why strangles typically perform poorly when markets calm after periods of heightened volatility.<\/p>\n\n\n\n
<\/figure>\n\n\n\nPerhaps the Risk Navigator’s most valuable feature is its ability to model positions across time, including beyond expiration. By advancing the date to the day before expiration, traders can visualize the accelerating theta decay that characterizes options in their final days. Out-of-the-money options show particularly dramatic premium erosion, reinforcing the challenges of holding such positions into expiration week.<\/p>\n\n\n\n
The tool also allows modeling what happens after expiration by:<\/p>\n\n\n\n
- The Risk Navigator will open with a red border, indicating it’s in edit mode<\/li>\n<\/ul>\n\n\n\n
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