Course Structure

The objective of this four day options training course is to give an all-round comprehensive general knowledge and understanding of the theory and the day-to-day use of Financial Options. Delegates of the options training course will learn how Financial Options are used by banks and corporate treasuries alike in the management of risks, for trading, hedging and arbitrage and their role in the day to day running of the finances of businesses. This options training course is intended to allow those who do not have advanced mathematical training to gain as clear and deep an understanding as possible into the intricacies of option pricing and theory. Guidance on the underlying instruments on which these options are based (including bonds and relevant futures contracts) will be provided at the appropriate points in the options workshop.

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Who Should Attend

This options training course will be very useful for all those who seek to acquire a good level of knowledge and skill in the operation of these derivative products, how they are used and why. In banks and financial institutions, new entrants to the business from university, corporate account officers needing to know sufficient detail to be able to communicate confidently with clients. Hedgers, traders, settlement, information technology and systems, legal, marketing, and credit personnel in the front, middle and back office. For companies other than financial institutions, this course will provide those in the treasury function with a thorough practical grounding in options as used in the corporate environment. From individual dealers to those at director level who need to know about these important products. It would help all participants of the options training course if they have a basic working knowledge of spreadsheets. A qualification in statistics is not necessary to attend this training course.

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Day 1

INTRODUCTION & GENERAL PRINCIPLES

• What financial options are, definitions from holders and writers viewpoint

• Free-standing, embedded, types/styles, OTC & listed characteristics

• Introduction to breakeven analysis

• Basic long option trading strategies, objectives and P & L analysis

• Options as investments, leverage, breakeven analysis in trading

• Options as hedges, benefiting from cash position, breakeven analysis

• Basic long option hedging strategies, objectives and P & L analysis

• Basic short options trading strategies, objectives and P & L analysis

• Basic short options hedging strategies

• Complex trades, vertical and horizontal spreads

• Sundry trades including synthetic option trades and time trades

Practical: Options quiz

Practical Case Study: Listed FX options hedge
 

INTRODUCTION TO OPTIONS COURSE SOFTWARE

• Lay out and navigation of Swan™ software

• Lay out and navigation of Excel based packages

• Overview of option variables and greeks

Practical Case Study: FX risk management using options

OPTIONS IN TRADING

• Further trading strategies

• Effects of manipulating strike rates, OTM, ATM and ITM strategies

• Directional and volatility trading

• Combinations, options arbitrage

Practical: Further trading strategy work

Day 2
OPTIONS IN RISK MANAGEMENT - PASSIVE AND ACTIVE APPROACHES

• Planning the hedge, execution, construction and analysing possible outcomes

• Breakeven analysis, justifying option decisions in commercially based exposures

• Writing options against specific cash positions

• Written options, effects on profitability and risk in cash position

• Hedging contingent cash positions

• Effects of manipulating strike rates, OTM, ATM and ITM strategies (hedging)

Practical: Examining hedging strategies in case studies

OPTIONS PRICING I

• The concept of fair value, basic methods of estimating fair value

• Intrinsic value/time value, implied/historical volatility, decay

• Relationship of volatility and time and fair value

• Introduction to option pricing models, concepts in analytic and binomial methods

• Characteristics and shortcomings of pricing models

• Defining and using option derivatives in hedging options and in option portfolios (Greeks)

Practical: Using computer based exercises in option derivatives behavior

• FX options

• OTC options

• Currency futures options

• Characteristics and applications

• Further strategy development

Practical: Further computer case study
 

Day 3
OPTIONS PRICING II

• Construction of binomial models for option valuation

• Understanding how volatility is calculated and implied

• Option math and continuously compounded volatility returns

• Practical: Participants will construct and test their own 25 step binomial model

• OPTIONS PRICING III

• Construction of closed form options pricing model

• Analysis of pricing components

Practical: Constructing and testing a Black and Scholes spread-sheet model

INTEREST RATE OPTIONS

• OTC options on FRAs

• Options on interest rate futures

• Characteristics and applications

• Further strategy development

Practical: Case work involving computer model for interest rate hedging

• Option strips, caps and floors

• Characteristics and applications

Practical: Participants will construct their own interest rate cap
 

Day 4
FURTHER WORK WITH OPTION DERIVATIVES

Practical: Participants will delta hedge an FX option position

INTRODUCTION TO LOW PREMIUM STRATEGIES

• Collar/cylinder strategies

• Participating forwards

• Participating FRAs

Practical: Hedging case studies

EXOTIC OPTIONS

• Introduction to exotic principles

• Knock out options

• Knock in options

• Double knock out/knock in

• Average rate options

• Digital options

Practical: Case studies

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