Introduction to Equity Derivatives

In addition to your class tuition and study materials, you will receive the following:


Case Study

• A recent FTSE 100 equity option contract will be used to explore the motivations around using these three important vanilla strategies
• We will apply the more advanced option strategies to a series of real life scenarios. Can you spot the right trade?

Other Extras

• Certificate of attendance

Level: Introductory


Synopsis:
The equity market - that is, the underlying "cash" instrument - is only half the story. The role of equity derivatives is becoming more and more important. More investors are using these products, more investment banks are selling them and everyone seems to be trading them. Why are equity derivatives important? What can they do that the "cash" markets can't? How are they priced? And how will they be used in the future? This course provides a comprehensive introduction to the broad equity derivative product range.


At the end of the course participants will be able to: Identify how equity derivatives are used to structure products for corporate and retail uses . Position the major index future contracts as risk management tools and review other futures-style contracts . Review more advanced options trading strategies and consider some exotic options . Consider how options traders handle some of the risks of options trading . Examine how the Greeks are used to manage option risk and why the delta hedge is important . Explore the importance of volatility in option pricing and trading . Understand the importance of, and background to, the growth of equity derivatives . Consider the main uses of the vanilla strategies .


Prerequisites:
None


Suitable For:
Structure product sales people, junior traders and those involved in middle office


Introduction to derivatives

• Breaking down the jargon
• Reasons to use derivatives
• Reasons to be careful with derivatives
• The major equity derivative products
• Who uses equity derivatives, why and how?

Introducing equity options

• Key terms and concepts in options
• The Vanilla strategies & how they are used
• Long call, short call
• Long put, short put

Pricing options and volatility

• What is volatility - and why does it matter?
• Volatility - implied vs. historic
• Discussion of recent equity market volatility
• LTCM - a seller of volatility

The Greeks

• Minor - Rho, Theta, Vega
• Major - Delta, Gamma
• The traders' hedging decision
• The dynamic delta hedge
• The volatility trader - how they think about their positions

More advanced equity option strategies

• Synthetic trades - long and short equity structures
• Volatility trades - straddles, strangles
• Combinations - collars, zero cost collars
• Directional - bull and bear spreads
• Exotic options characterised
• Different types of exotic option
• Using and selling exotics

Equity futures and the delta one product range

• Fair value in index futures
• Hedging, speculation & arbitrage
• Synthetic performance
• Other futures-style products considered: ETF's, CFD's, Spread betting

Equity swaps and synthetic indexation

• What is an equity swap? How does it work?
• Uses of equity swaps
• Comparison of synthetic structures

Structured products

• Developing client solutions
• Corporates: convertible bonds / equity linked products
• Retail: warrants
• Income guaranteed / capital guaranteed structures
• Embedding options into structured products