That was an interesting article on credit spreads. I have been trading debit spreads with great success for the past year or so but have always identified my candidate trades by eye. I have recently been looking for a scanning tool that would help me determine the most profitable spreadtrades. Do you know of any good spread analysis tools? -- D.D
Some of the best scanning and analysis tools are available as part of the basic package of resources offered by many online brokers, and the wide variety of tools basically comes free with opening an account. For option traders, two of the best are
. These two firms were launched by and for option traders and continually use customer feedback as the basis for building their technology and expanding their capabilities.
The fact that both were just included among
best online brokers, with OptionsXpress winning top awards for an unprecedented three years in row, speaks to the fact that the firms catering to option traders have been the most progressive in terms of effectively implementing technology onto their trading platforms. I particularly love OptionsXpress, which has been groundbreaking in building a mainstream online brokerage firm that caters to option traders.
Right now, ThinkorSwim's SpreadHacker tool gets the nod as the superior scanning tool. It scans for spreads based on real-time quotes and uses profit probability to identify attractive candidates. Right now it is still in the beta version, meaning it only scans the 100 most active listings and the parameters are fairly fixed. But the list should be expanded to include the top 200 volume leaders, and the ability to tighten the criteria should be available in the near future.
If you go to ThinkorSwim's
someone will set you up with temporary access and a password so you can check out all the tools, including SpreadHacker, prior to opening an account.
OptionsXpress' tools, while extensive, tend to be based on more first-line data, such as changes in volume and open interest, rather than derivative pricing. This will be sufficient for traders who tend to be directional, rather than purely value or probability based. OptionsXpress also offers a free
and the chance to open a "paper trading" account as a means of checking out both the functionality of the firm and the effectiveness of your trading, without committing or risking any actual money. As I warned in
this article, results from paper trading rarely translate into the real thing.
Another great place for screening tools is
. While almost all of its offerings, such as its
, come on a subscription basis, it offers a free-trial period.
How do you determine the delta of a credit spread as opposed to an individual option?
A positions delta is always calculated on a cumulative or sum of all its parts. A long call has a positive delta, while a short call will have a negative delta. For more information, see this
past article on how to calculate the delta of a multistrike position.
More Follow-Up Resources
Many readers also asked for suggestions regarding follow-up reading or educational resources. Not much has changed since the last time I recommended some books, including
Options as a Strategic Investment
by Larry McMillan and
Options and Options Trading
by Robert Ward as well as courses given by
, which I reviewed in this
earlier article. To this short list I'd like to add ThinkorSwim's educational division,
OptionPlanet.com. You can go there to find out about their offerings and the dates of upcoming seminars.
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Steven Smith writes regularly for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He was a seatholding member of the Chicago Board of Trade (CBOT) and the Chicago Board Options Exchange (CBOE) from May 1989 to August 1995. During that six-year period, he traded multiple markets for his own personal account and acted as an executing broker for third-party accounts. He invites you to send your feedback to