Pricing and Trading Options

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


Case Study

• OP1, OPS: delegates will price and then trade as market-makers the put and call options they have priced

Simulations

• Risk Manager Trading Simulation

Exercises

• Options Strategist - exploring premiums, time value and volatility
• Binomial Pricing exercises
• Options Strategist exercise 2 - Exploring the Option Greeks
• Calculating historical volatility
• Options Strategist exercise 3 - Exploring volatility spreads
• Options Strategist exercise 4 - Option trading strategies

Other Extras

• Certificate of attendance

Level: Intermediate


Synopsis:
This course will teach you to understand the pricing, hedging and trading of financial of options portfolio in a practitioner led, hands-on environment. Delegates will benefit from a unique learning approach that uses state-of-the-art trading simulations and hands-on case studies and provides an intuitive insight into this vital and frequently misunderstood area of the financial markets.


At the end of the course participants will be able to: Benefit from a practitioner-led approach . Learn standard option trading strategies with the CME strategy guide . Get hands-on experience of trading options using state-of-the-art simulation software . Learn to hedge the volatility risk of an options portfolio . Learn to be an options market maker . Gain a practical understanding of option pricing . Understand how to trade volatility .


Prerequisites:
None


Suitable For:
Junior derivative traders - Middle and back office personnel -Investment banking personnel - Junior risk managers - Corporate treasurers - Commercial bank treasury personnel - Fund managers - Financial control, risk and compliance personnel - Derivative systems developers


Introduction

• Futures & forwards contracts - pricing - markets
• Implied futures rates and the no-arbitrage zone
• Review of basic option definitions
• Premium strike relationship
• Market exposure
• Time value and intrinsic value
• Introduction to volatility
• The probability of exercise
• Put-call parity
• Some basic strategies
• Synthetic options and arbitrage: conversions and reversals

Option pricing

• The binomial option pricing model
• The riskless hedge
• The replication portfolio
• Risk neutral valuation
• Risk neutral probabilities
• The Cox, Ross, Rubinstein Model
• Pricing American options - early exercise feature of American puts
• Introduction to delta hedging in a discrete time frame
• Intuitive overview - the Black-Scholes Model

Option price sensitivities - risk and trading applications

• The basic 'Greeks' - Delta, Theta, Gamma, Vega
• Delta as a measure of the probability of exercise
• Delta long, Delta short, Delta neutral
• Portfolio Delta
• Risk exposure
• Gamma risk and neutralising Gamma risk
• Long/short Theta and Vega
• Trading the Gamma
• Delta-Gamma hedging
• Assessing the risk of an options position using the Greeks
• Summary of the Greeks

Volatility

• What is volatility?
• Historic, future and implied volatility
• Iterative procedures for measuring implied volatility
• The LTCM case
• Trading actual and implied volatility
• Long/short Gamma Delta neutral
• Long/short Vega - Straddles, Strangles
• The Nick Lesson case
• Ratio spreads, Back spreads
• Butterfly spreads

Trading strategies

• The Chicago Mercantile Exchange Strategy Guide
• The Greeks revisited
• Optimal trading strategies given various market conditions
• 'What-if' scenarios