Software For Trading Index Options

Index options are one way to speculate in the stock market.

Index options are trading vehicles for speculating on the direction of a stock market index. They are highly leveraged and very risky. These options are not unlike stock options, except that their underlying entity is not stock, but rather an index. The pricing behavior of index options remains as complex as any other option. Software can assist in predicting changes in the price of an index option. Specialized option programs can also help design complex option strategies.

ThinkOrSwim

The ThinkOrSwim trading platform offers the ability to trade stocks, options, futures and forex. However the application provides many specialized utility especially designed for options traders. The "thinkBack" software integrated into ThinkOrSwim allows you to view past price behavior of index options. While it is easy to see the past prices of stocks by looking at a chart, index options eventually expire and there is no continuous price history. This platform solves that problem. Additionally, complex tools for analyzing the complicated option pricing model allow you to see how small changes in an index are related to an index option's expiration date to ultimately affect its final price. These are effective software solutions for better understanding the complex trading mechanism of index options.

TradeKing

TradeKing is a Web-based broker that specializes in stock options and index options, though it also provides regular stock transactions. An integrated Java program available to clients of the website offers an interactive way of manipulating virtual index option positions. You can click to select the different legs of a complex option strategy and watch as a line graph updates the profit and loss scenarios of the combined index option positions. Both the parameters of the underlying index price as well as the duration of the option's term are expressed in separate axes, so you can see exactly how much the trade will be worth at a set point in time should the index reach a key price point. While TradeKing is strictly an online software application, the features of this program rival that of standalone systems.

TradeStation

TradeStation was the first mainstream broker to offer an entire programming language and compiler for automated option trading systems. This type of system has been available to major banks and institutions for decades, and TradeStation makes it available to any home user. Using the "EasyLanguage" programming language, you can design any trading system you wish for index option transactions. Before using the system with a live funded account, you can backtest on previous price data and also run it in real-time with a simulated account. The historical price database for many index options contains more than 30 years of data, including the volatility information that is critical to index option pricing models.

References

• ThinkOrSwim: Software
• TradeKing: Tools Overview
• TradeStation: Consider a Better Trading Option with TradeStation