Understanding Derivatives

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


Complimentary e-learning module
Case Study

• Payoff Profiles (buying a call, selling a call, buying a put and selling a put)
• Examine the recent traded options prices of a FTSE 100 company

Exercises

• Understanding information on the futures market in the Financial Times
• Draw the pay-off profiles for long and short positions on a range of futures contracts
• Calculate the fair value of an equity index future

Other Extras

• Certificate of attendance

Level: Introductory


Synopsis:
Derivatives occupy a central role in today's financial markets; it's impossible to ignore them and understanding them properly opens up exciting trading opportunities.Demystify market jargon and discover how and why derivatives are constructed, priced and used. Learn about the derivative marketplace and the practical realities of trading. Understand recent trends and the reason why derivatives are the product everyone's talking about.


At the end of the course participants will be able to: Explain how margining works on derivatives exchanges . Describe the motivations behind options trading . Identify common option strategies . Analyse the components of an option's price . Discuss the uses of options for retail and institutional investors . Describe the four basic payoff profiles for option instruments . Compare futures with other futures-style products such as swaps, ETFs, CFDs and spread bets . Define market jargon and terminology . Examine the different uses of futures from hedging to arbitrage . Examine the payoff profiles of long and short futures positions . Explain the features of futures contracts and why they are traded . Examine the differences between the underlying asset, futures, options and swaps .


Prerequisites:
None


Suitable For:
Individuals wishing to obtain a general understanding of derivative products and an insight into why they are used by the various market participants. New employees and individuals in support or IT roles will also find this course useful.


Basic futures

• Futures vs. forwards
• Motivations behind using futures over 'cash'
• Trading futures & payoff profiles
• Types of futures contract

Pricing and using futures

• Fair value and the cost of carry
• Fair value vs. market price
• Basis and basis movements
• Uses: Hedging / Synthetics / Speculation / Arbitrage

Basic options

• What is an option?
• The difference between options and futures
• Important terminology
• Payoff profiles
• The Vanilla positions - Long call / short call / long put / short put

Pricing options

• Components of the premium - Intrinsic vs. time value
• Factors that influence the value of the premium
• Basic options models
• Overview of delta and the Greeks

Using options

• Who uses options?
• Hedging versus Speculation
• Income versus leverage
• Speculating on volatility - straddles
• Exotics and convertible bonds

Swaps

• Swaps defined: terminology and concepts
• Types of swaps: interest rate, equity, currency
• Basic swap pricing
• Applications of swaps: corporates, investors, hedge funds

Clearing, margining and delivery

• The role of clearing organisations
• The clearing house as central counterparty- novation
• Variation margin
• Initial margin - SPAN margining
• Exchange delivery settlement price (EDSP)