What is the 'Options risk ladder'?

The Options Risk Ladder is a dynamic tool designed to give options traders a quick snapshot of their portfolio’s risk exposure. This is commonly referred to as the “Greeks”

What do Option Risk Ladders measure:

The ORL calculates and displays the following metrics for various spot price levels:

• PV Change (change in portfolio value)

• Delta

• Vega

• Theta

You can customise the range of spot values to suit your analysis needs.

Please note: The Options Risk Ladder in Totality is a model-based tool designed to simulate how your portfolio’s risk metrics such as Delta, Vega, and Theta might respond to changes in the underlying asset’s price.

However, please be aware of the following limitations:

• Model-Based Estimates Only: The ORL is mark-to-model, meaning it provides theoretical projections rather than guaranteed outcomes. It should not be relied upon to predict actual portfolio changes under market stress.

• Not for Margin Management: The ORL is not intended for managing margin requirements or anticipating margin calls. Use dedicated margin tools for that purpose.

• Partial Instrument Coverage: The ORL includes only a subset of instruments available on the Totality platform. Any instruments not included in this subset will not be reflected in the ORL’s results.

How to view the Options Risk ladder

Click 'add module' -> options risk ladder.

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Equity Options – Understanding Key Metrics

PV Change
Represents the projected change in the portfolio’s mark-to-market (MTM) value based on movements in the underlying share price.

Example: If the PV change is +A$25,000 for a 2% drop in the underlying, the portfolio is expected to gain A$25,000 if the share price falls by 2%, assuming all other factors remain constant.

Delta
Measures the change in portfolio value for a 1% increase in the underlying share price.

Example: A delta of –A$10,000 on AAPL shares means a 1% rise in AAPL’s price would result in a A$10,000 loss, while a 1% drop would yield a A$10,000 gain.

Vega
Indicates the change in portfolio value for a 1 percentage point increase in implied volatility.

Example: If implied volatility on AAPL is 40% and Vega is +A$5,000, a rise to 41% would increase the portfolio’s value by A$5,000. A drop to 39% would reduce it by the same amount.

Reflects the expected change in portfolio value from the passage of one day, assuming no other changes.

Example: A theta of –A$100 means the portfolio would lose A$100 over the next day due to time decay.

FX Options – Key Risk Metrics Explained

PV Change

This shows the projected change in the mark-to-market (MTM) value of your portfolio based on movements in the AUD/USD spot rate.

Example: A PV change of +A$25,000 for a 2% drop in AUD/USD means your portfolio is expected to gain A$25,000 if the Australian dollar weakens by 2% against the US dollar, assuming all other factors remain constant.

Delta

Delta reflects the notional amount of the base currency (in this case, AUD) that you're effectively long or short. It indicates how much AUD you would need to buy or sell in the spot market to hedge your exposure.

Example: A delta of +A$1,000,000 in AUD/USD means you are long A$1 million. To neutralise this exposure, you would need to sell A$1 million in the AUD/USD spot market.

Vega

Measures how sensitive your portfolio is to changes in implied volatility. A 1 vol point change refers to a shift from, say, 10% to 11% implied volatility.

Example: If Vega is +A$5,000 and implied volatility increases from 10% to 11%, your portfolio value would increase by A$5,000. A drop to 9% would result in a A$5,000 loss.

Theta

Theta indicates the expected change in your portfolio’s value due to the passage of one day, assuming no other market changes.

Example: A theta of –A$100 means your portfolio would lose A$100 over the next day purely due to time decay.

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