Saxo Bank FX Options reports: A professional tool for all to use

Saxo Bank recently launched a new set of reports available to its customers trading FX Options.  Those reports provide a detailed analysis of the trader’s FX and FX Options positions across multiple currency pairs and are invaluable for anyone taking a portfolio based approach to trading.  They allow the astute investors to efficiently manage their risk exposure and efficiently reflect their market view in their trading.

Today, we will give a brief introduction to those reports and detail the “summary” page.  Follow-up articles will explain the other 2 pages in details (Spot Ladder and Spot/Vol grid).

Why those reports?
When trading FX Spot in a single currency pair, the situation is pretty simple:  if you are long and spot goes up, you make money; if it goes down you incur a loss.  It gets a little more complicated when mixing several currency pairs together: long EURUSD and short EURGBP might in fact be a GBPUSD position (or not) depending on the amounts involved. What if I am long EURAUD, long AUDJPY and short EURJPY? What is my risk in each currency?  Still, this is not all that complicated, and a quick spreadsheet or a trusted calculator will provide you with the real picture and an accurate exposure.

However, when adding FX Options to the mix, our trusted calculator starts to show it limitations.  With multiple positions, combining FX Spot and FX Options in multiple currency pairs, it can be pretty difficult to know what your real market risk is “off the top of your head”.  What will cause me to make or lose money; will my exposure be the same if spot moves 1%... what about 5%?  What is the quickest and most efficient way to hedge my position?

The FX Options reports have been designed to help you answer those questions by providing risk matrixes, very similar to those used by professional interbank FX options traders.  As such, they are invaluable tools for the active trader wishing to control risk and maximise opportunities.

What are those reports?
The reports are designed to show your exposure to various factors under different scenario.  The data is aggregated per currency pair, per currency itself or by individual position.

Reports will be available if you have at least one open vanilla option and will include both your FX positions and FX Options positions.  (Binary Touch Options are NOT included at this point).

Reports are available in SaxoTrader and Web Trader, under the Account tab / “Forex Options Reports”.

More details about FX Option pricing and price sensitivities can be found in previous article in the FX Options 101 blog and are widely available on the internet.  However, for sake of ease, let us just review a few concepts, by looking at the first table in the summary tab:

Summary per cross 

This table aggregates all the positions per currency pair, and shows a global view of one’s risk in each pair.  For instance, we can see that the EURUSD portfolio is comprised of 5 positions.

Value : shows the amount an option is worth.  Shows a positive number if you are long, negative if you are short.  For Spot, this shows how much the position is in profit or loss.

Delta : Shows the equivalent FX Spot exposure of a given position.   This is the sensitivity of a position’s value with respect to the spot rate.  In the above table, we can see that the overall position in EURUSD behaves as if it was long 7.15 mio EURUSD spot:  if EURUSD spot moves 1 pip up, the portfolio’s value would increase by USD 715.

Gamma : This is the second derivative of the position value  with respect to spot, i.e. it shows how much the delta changes when spot changes (i.e. how much will the delta change when spot move up by 1%).

Vega : Sensitivity of a position with respect to the implied volatility used to price FX Options.  This shows how much money is made (positive number) or lost (negative number) when volatility goes up 1%... from say 12.5% to 13.5%.  In our example, we see a positive vega of USD 24,429 in EURUSD, meaning that the position’s value will increase by this amount should volatility rise by 1%.  This amount would be lost if EURUSD implied volatilities were to go down by 1%.

Theta: Also known as time decay.  This shows by how much the position will increase or decrease in value from one day to the next.  In the above example, and all other things being equal, we can see a decrease in value of USD 1,164 for the EURUSD positions for one calendar day.

Net Delta by Currency

This table just shows the delta, but this time netted per currency rather than currency pairs.  This is very useful to see triangulation risks, and to identify which cross a portfolio is most exposed to. In our example, we can see that the EUR exposure is actually relatively small, being netted between EURUSD and EURJPY.  The main risk of the portfolio is in USDJPY, showing a net short position of around  11.85mio.

Summary per position

Finally, the summary page displays a table showing the market sensitivites per individual position.  Although this might seem a little redundant with the other tables, this is actually quite useful to identify where a specific exposure comes from.  For instance, we can see that our net EURUSD vega exposure (sentitivity to implied volatility) is mostly coming from our long position in 17 Jan 2013, 1.2545 EUR calls (second line from the bottom).

As can be seen, this summary page provides a very good snapshot of the portfolio at a given time, and will be very useful to the active trader.

Over the next few weeks, we will give more details about the other pages of these reports: Spot Ladder and Spot/Vol Grid.  Those allow the user to get a more detailed picture of their risk exposure as spot and volatility moves.

Disclaimer: Use of these reports is for informational purposes only and should not be perceived as trading advice or a financial statement of profit and loss. No responsibility is assumed for any losses incurred as the result of information presented within.