Tutorials with InFabric

TUTORIAL: Get the Most Out of Flow

By April 14, 2021No Comments

Hey Traders! So you might be thinking… What the heck is Flow?!

InFabric has both Flows and Strategies. Strategies, as you can learn more about here, were built for comparing options together, building complex plays, and created what-if scenarios to compare your plays to plays.

Flows on the other hand, were built for quick analysis. Flows are for the times you want a quick breakdown on the good and the bad on a stock or option you’re interested in. You don’t need the bells and whistles of alerts or Eve, our AI Assistant. You just want to see what your options would perform. Use Flow to survey the market, figure out what you want to buy, know what’s likely to fail and what’s likely to make you money.

With this article you’ll know how to read a Flow chart and how to edit its contents to get you the most customized chart possible.

Let’s get into it!

Choosing Your Chart

InFabric has two versions of a projection flow graph: Detailed Distribution, and Uniform Distribution

Choose which version of the chart you’d like to view by clicking on the bottom right-hand circle, bringing you to Analysis Properties, then Projections.

Detailed Distribution AAPL Flow Uniform Distribution AAPL Flow

Detailed Distribution (Left Chart):

When you’re looking for predictions of movement of the underlying stock and its contracts, select Detailed Distribution.

In other words, we’re predicting market direction with the help of millions of data points. Knowing the direction is helpful when trading both stock and their options for clear indicators of low and high points. The goal is always to buy low, sell high – and what better way to win in this strategy than to project when the time is coming.

Uniform Distribution (Right Chart):

When you’re looking to track the magnitude of movement, you’ll select Uniform Distribution. This version of the chart also shows projections but in a different way.

When we say magnitude, we mean the magnitude of recent gains and recent losses over a period of time. It helps to determine your overall risk management strategy allowing you to see exactly the likely outcomes and what is more likely to make you money. Magnitude is an important factor in trading stock options especially since options show overbought/oversold conditions less often than stocks do.

Reading Your Flow

AAPL Flow
Horizontal Axis: % Gain / % Loss of each contract, security and strategy
Vertical Axis: Left side shows # of days into the future from your entry point
Vertical Axis: Right side shows % growth of underlying security (AAPL Stock in this case)
Entry Point: Day 0, Today
Node: Includes all details for this stock option, at this point in time (+184 days from today)
Volume: This line is thicker than others (notice AAPL Stock line for reference)
*Securities Context tab: Find Popular Contracts & Expected Move Charts

Each line on the graph represents a stock or option. For this example, we’re going to choose AAPL as the Underlying Stock. One line on the graph is AAPL Stock, which you can quickly Highlight by going into Analysis Properties, typing ‘stock,’ and selecting ‘AAPL Stock’ from the drop-down.  

The underlying stock is the base point for how its options will perform. All options having AAPL as its underlying security will move in relation to AAPL Stock. Each contract value (in other words, value of each option contract) depends on the underlying security. 

Horizontal Axis:

Every other line besides AAPL Stock represents an option of AAPL, either a call or put. Your horizontal axis shows the amount of gain or loss in percent of each line – lines being either the stock or an option. Further to the left means higher the growth, while further to the right means higher the loss. This concept is also made more intuitive by the use of color – green for gains, red for losses. Some lines may even have both colors associated.

Vertical Axis:

Your vertical axis is also important here. This shows how far we’re projecting, or number of days into the future. To the right-side of the vertical axis shows the percent growth of the underlying security, in this case AAPL Stock, since each contract value depends on the growth of the underlying. The left-side of the vertical axis has the date and number of days into the future from your entry point (at zero days).

Entry Point:

Your Entry Point is the point of entering the option or stock, which is today (Day 0). Your charts will always be updated to project the future from today’s point, so you’ll notice every time you log in this day will stay as Day 0.

Node:

Each node represents a specific moment in time with the vertical axis telling us its date and the horizontal axis telling us its projected performance. When you hover over each node you’ll find every detail for that point in time – the contract information such as strike price, date, call/put; the date of this point and number of days out from today; fair value in dollars at that point; profit and loss percent at that point.

Volume:

The thickness of each line represents its volume. Most lines will look the same but if you hover over the lines, you’ll likely find some that are wider. Those have more investors interested in buying or selling. To put it simply, volume helps to determine market interest.

  • If an option is appreciating at high volume, getting in on it will more likely to be a sustainable move. Also, high volume usually means it has a tight bid-ask spread which helps in keeping a clean trade.
  • Low volume contracts may mean higher bid-ask spread as well as lower interest from buyers/sellers, which means you’ll have a hard time finding someone to buy or sell when looking to exit. No buyer/seller means you run the risk of being locked into a losing trade. The exception to getting in on low volume option is when you’ve done your due diligence and believe in the company is great and simply just undiscovered.

Another way to spot volume on your options is to click Securities Context tab, and search in Popular Contract. Hit the All Dates toggle to see popular contracts for every contract associated with your underlying security, even those you’ve filtered out.  

Customizing Your Flow

AAPL Flow Analysis Properties
1. Enter in Underlying Security
2. Enter in Expiration Date(s)
Highlight a specific option through this drop-down
Underlying Security can be seen and edited here too
Expiration Date(s) can be seen and edited here too

Let’s get into customization. Every Flow, and Strategy for that matter, is able to be customized to show exactly the information you want to see.

When creating your Flow you’ll enter the Underlying Security and Expiration Date(s) into Analysis Properties just as you would when creating a Strategy from scratch. Click on the bottom right-hand circle for access to Analysis Properties. (For more context check out our Strategy post.)

The difference with Flow is that you’re only able to enter one underlying security. For a Strategy you can enter as many securities as you wish to compare, but Flow is for a quick analysis so just one here.

If you have specific options in mind, drop down to Highlight in Analysis Properties and start entering your strike price. Select the call or put you want and click View Results. If you don’t have an option in mind, just click View Results.

Now we’re looking at the Flow chart. Let’s choose our option!

Since AI is projecting positive growth of AAPL Stock, you’ll notice mostly calls are green on the left side, while mostly puts are red on the right. Remember from this post that when stock rises calls rise and puts drop. Well, unless you buy the wrong ones of course. Notice some calls in red, showing they’re more likely to lose you money.  

Customizing Your Flow: The Nitty Gritty

We have the basics created for us so far, and it’s looking great. Now let’s get into the nitty-gritty details. 

AAPL Flow Customized
Filters: View and edit here
Projection End-Date: View and edit here
Target %: View and edit here
Time Intervals: View and edit here

Take a look at the top of the Flow chart and you’ll notice icons with data entered into them. These make it quick to know exactly what you’re seeing in your chart, but it’s also the quickest way to make detailed edits! With this, change data through these points by editing right on the graph itself, or click on the bottom right-hand circle for the Analysis Properties pop-up. 

Filters:

Clicking on the Filters tagAnalysis Properties will pop up. Filters are especially useful to see exactly what you need by narrowing down your choices of contracts. 

For this example, if you believe AAPL will go up you might want to look at just calls. Enter that in Option Type. Maybe you’ve selected (or Highlighted) all the options for your watchlist and want to save this Flow to go back to. You only want to see these options next time you login, so choose Selected Only.

If you only want to spend $1,000 on your trades, enter this in Entry Price. Select Less or Equal in the drop-down next to it.  

If you’re trying to earn at least $5,000 on this trade, enter that number into Target Price. Select Greater or Equal in the drop-down.

Or you’d rather have the goal to earn more than 100%. Enter this into Percentage Return. Select Greater than in the drop-down. 

Projection End-Date:

Continuing with our AAPL example, let’s say we’re going for long calls here. We’re interested in the expiration date of 06/17/2022. That gives us just over 1 year until expiry. 

It’s important to know that the date you set as the Projection End-Date is the longest date you’d like to be in the option for. So, if the date is set to December 1 2021, InFabric’s AI Assistant will know you want to stay in until December 1 2021 at the latest. She’ll let you know the best date to exit within that range.

We chose two options for this example, one expiring later than another. You’ll notice the flow line of one contract doesn’t change after 9/17/2021. That’s because 9/17/2021 is the expiration date for that option. After expiration of the contract the flow line drops straight down since the value of the option doesn’t change after expiration. 

So, make sure to match your Projection End-Date with your last option expiry to get a complete visual of how that option moves. Then update this end-date to the longest date you’d like to be in the option for (if that’s sooner than expiration). 

Note: You’ll usually get out sooner than expiration when your profit target has been reached or your loss target has been reached. In other words, when the risk outweighs the reward. Let’s say you’re estimating these contracts will reach your profit target by September 14th – You just want to see how this will look with the data coming in from today’s market knowledge. The quickest way to change this date is to click the Projection End-Date tag at the top and select September 14th on the calendar icon. 

Target %:

Our projected market growth here is positive (at 37.94%). Because of this, let’s scroll around the green side and look for calls.  

I want a less risky option so let’s look near the vertical line, at 0% gain or loss. 

Risk management is one of the most important factors when choosing options, and here’s how we break it down with Target %: When the line is closest to the vertical line it holds less risk therefore less reward, while furthest holds high risk therefore potentially highest reward. Lines near the middle are moderate which is a great option for lowering risk while still investing enough to have a decent profit goal. 

With this information, I’m choosing moderate to stay safer. Let’s choose 75 Call 2022-06-17. Click that line and now it’s Highlighted. Feel free to select or de-select the line by clicking on the detail tabs at the bottom of the chart. 

Another Tip: Say you disagree with AI that SPY will go up 37.94% by your Projection End-Date. Or say you just want to be safe and see if your contract could outlast a slight market crash. Enter 25% in the Target % tab and you’re done. InFabric AI is now going to change every contract (or Flow line) on this chart to represent projections based on the underlying security moving 25%. Incredible. In an instant you’re exploring a whole new scenario!  

Make sure you’re still happy with that selection, or de-select the highlighted Flow line and choose another. If you changed Target % out of curiosity but really do believe AI’s prediction of 37.94% growth, feel free to change the number back.

Time Intervals:

To see more detail on the direction or magnitude (depending if you chose Detailed vs Uniform as your displayed chart), change number of Time Intervals. The chart starts us off with 7 horizontal lines, but let’s enter 10 in the Time Intervals tab

With this change you’ll see every option now shows projections in closer time-frames than before. This comes in handy if your trades are more short term, or if you’re looking to exit soon.

Note: Remember all customizations can also be changed by going into Analysis Properties. For Time Intervals you’ll find this under Projections.

At InFabric we hope to be your one-stop shop to all things options. During those busy hours, check a Flow for your quick analysis. Or look to Flow when choosing a starting point for your Strategy, or just interested in a popular stock.

The possibilities are endless! How will YOU use Flow?   

Start Utilizing Flow Today!