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Brokerage Firm Option Risk Monitoring
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The Challenge
The client was concerned they were not fully capturing the real-time risk exposures in their client portfolios. They needed a way to identify high-risk accounts before issues escalated, especially given the growing prevalence of short-dated and complex option strategies.
The Solution
Softek collaborated closely with the client to develop and implement a set of custom risk metrics, screens and automated alerts designed to flag potential risk issues across all accounts in real-time.
Option Greeks Monitoring
We integrated key option Greeks—Delta, Gamma, Vega, Theta, and Rho—at the portfolio level to capture risk elements not always reflected in regulatory margin requirements. Normalizing these metrics across portfolios helped the client pinpoint accounts with elevated sensitivity to market movements.
We also provided training and guidance to help their risk team interpret these values and take early action where needed.
Assignment Risk Analysis
To address concerns around cash flow impact from option exercises, we introduced metrics calculating assignment value across stress scenarios and maturity buckets, with a focus on near-expiry contracts.
These values were aggregated at the account and issuer-group levels using custom logic, allowing Softek to quickly assess exposure concentrations and prioritize monitoring efforts.
Strategy Violation Alerts
To ensure compliance with account-level trading permissions, we implemented a rule-based engine to flag accounts inadvertently holding unapproved option strategies. Each alert includes the account’s permission level for quick resolution.
Real-Time Data & Monitoring
All metrics were integrated into Softek’s real-time Credit Monitor application. Data is streamed live and displayed at the account level, with full filtering, sorting, and aggregation capabilities. When a risky account is identified, users can drill down to the position level with a few clicks—sorting by any metric to immediately see what's driving the exposure.
Results
The implementation empowered the client to identify potential risks and take proactive action before issues materialized. During the firm’s SRO review, the risk monitoring enhancements were highlighted and well-received. The client reported that the tools and processes implemented provided strong assurance to regulators, giving them confidence that Softek’s approach to monitoring option trading risk was both robust and effective.
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