Options Markets I & II
Develop a comprehensive, practical understanding of options including market conventions, contract specifications, valuation, trading strategies and the regulation of markets.
CPE Credits: 14
This course is a component of the Derivatives Professional Certificate.
Prerequisite knowledge:
- Intermediate MS Excel skills (use solver, etc.)
- Basic probability
- Basic calculus
- Some knowledge of equity markets
- Knowledge of fixed income basics
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Module 1: Contract Terms and Conditions
- Option Terminology
- Contract Terms, Payoff Profiles & Break-evens
Module 2: Inputs into Option Pricing Models
- Asset price
- Strike price
- Time to expiration
- Interest rates
- Dividends
- Volatility
Module 3: Market Participants and Strategies
- Unlevered portfolio managers: Buy write, put write
- Speculators: Vertical spreads and earnings speculation
- Earnings announcements speculation
Module 1: Option Pricing
- Probability: essential concepts
- Normal and log-normal random variables
- Pricing models: Binomial and Black-Scholes-Merton
Module 2: Risk Management
- The Greeks: Delta, Gamma, Theta, Vega, Rho and Psi
Module 3: Risk Arbitrage Trading Strategies
- Calendar spreads
- Yield curve spreads
- Volatility trading
Module 4: Hedge Accounting for Swaps and Options
- Time decay
- Hedge ineffectiveness
- Cash flow hedges using interest rate swaps
- Fair value hedges using options