The stock scenario is a unique tool that allows you to find the optimal options strategy for a single stock. It scans all options and supported strategies and suggest the best strategy according to your criteria. It is the first tool in our 'stock workflow' approach - a set of tools to help you trade if you want to trade a specific stock.
- Finds the best strategy for a given stock, assuming target price and date.
- Comparing different options strategies between them and to buy&hold stock.
- See all saved scans and predefined scans the ticker appears in.
The Stock Scenario
In the top window, you will define the inputs:
- Price target: Above, below, between range, and outside range - This will be the price scenario we optimize for.
- Date - Pick the expiration.
The chart next to the form will allow you to see the recent price history and the price target you gave.
Scenario - this will show all possible trades for the scenario you gave.
Saved Scans- this will show you all the scans the ticker appears in. * This tool ignores the 'include symbols' filter.
Predefined Scans will show you all the scans the ticker appears in. * This tool ignores the 'include symbols' filter.
To help you get started, you can define the scenario using variables. These will help you create a plan for popular events such as: Stock reaches 200 days moving average, stock arrives to analyst target or 52w high or low, and more.
You can also use them in range scenarios and define one standard deviation move, ATR, etc.
The advanced settings allow you to control the simulation to get better results that fit your trading style. Therefore, they are suitable for advanced users.
- Include unbalanced spreads - this feature is only available for ranged scenarios. It will look for unbalanced iron condors and butterflies, not just symmetrical ones. Please note that this increases the time of the simulation by about x50. So please give it time. Our research shows that the results produced by this option are not superior to the 'regular' results, so it is turned off by default.
- Bid/ask level - This is the option price we use for the calculations. If set at mid, we will use the mid-price (average between the bid and ask). If it is conservative, we will use the bid/ask prices against you (buy on ask-price and sell on bid-price).
- Volatility - The last two inputs control the Monte Carlo simulation. The volatility represents the magnitude of the stock price movement. The higher the volatility, the easier it will be to reach further strikes. Pressing the icon next to the input field will allow you to use the stock's Implied Volatility or Real Volatility (or you can input your own).
- Drift - The last two inputs control the Monte Carlo simulation. This represents the annualized forward motion of the stock in the simulation. The higher number, the more bullish it is for the stock. Pressing the icon next to the input field will allow you to use the risk-free rate (U.S. Treasuries) or the stock's historical drift.
All trades appear in an individual card, one per strategy. You can control the slider to prioritize max return or max probability of profit.
- Title - The option strategy
- Subtitle - this is how to create the strategy (for example, Buy 100 shares and sell one call 165 strike for May 6th).
- Clicking on the 'Trade' link will open the trade tab and allow you to adjust the trade and send it to the broker/trade log. See this article for more. Clicking on the Trade will open the trade; clicking on the icon next to it will open the trade in a new tab.
- Return: Percent return on the strategy. Calculated as Expected P/L (or P/L) Divided by the Risk.
- Risk: The Risk of the strategy. Can also be used as the Buying power required.
- Expected P/L: The Expected Profit of the strategy. Calculated using a Monte Carlo simulation using the latest options, stock prices, and the risk-free rate. To see the P/L of the scenario itself, hover over the graph.
- Probability of profit: The probability of showing profit in the strategy. Calculated using B&S model
- P&L chart:
- Notice that you can hover above the chart to see the details.
- The Yellow Line is the P&L at expiration. The green line is the P&L calculation tomorrow according to the B&S formula.
- The black line is the current stock price.
- The dashed line is the breakeven point.
- The blue line is the target price you entered.
- Notice that you can compare different trades and buy and hold by hovering over the cards.
Clicking on the Saved Scans will show you all the scans you have that this ticker appears in. The card structure is identical to the previous section, But clicking on the scan name will lead to the scanner.
Please note that this feature ignores the universe and includes symbols filter.
Stock Scenario Use Case Video
The Monte Carlo Method for calculating EV
The Scenario tool allows you to optimize the option trade to your expected stock behavior. It will enable you to compare different options trades and buy&hold to find the optimal trade for you. This tool integrates with the rest of our tools, such as trade log, scanner, and more.
Note: We have a scenario engine that can be used in the scanner. It works by integrating one scenario for the entire market, allowing you to filter with it. You can read more here: Scenario for the entire market.
- Go to Option Samurai Scanner
- Getting started section in the help section
- Example use-case: Find the Best Trades for Market Events - Twitter Example
- Blog post about the Monte Carlo calculations in our blog.