Practical Aspects of Equity Options and Their Application to Investment Strategy
On January 19th 2022, $1.28 trillion exchange-traded single stocks options expired. The OTC options traded by institutions and high net worth individuals should also be included to get the real size of expiry. Given that the global and US equity market according to SIFMA are about $125 trillion and $50 trillion respectively, you can get a better appreciation of enormous size of the January expiration. This shows the prevalence of single-equity options. Many investors use them for directional bets, leverage, and hedging. In this course, the practical aspects of equity options trading and investing are explained. The basics of option, option greeks, volatility, appropriate strategies, and intricacies of trading using real life examples are demonstrated. Many financial blogs are prescribing option strategies that may not be suitable for less experienced investors, depending on factors such as level of investor knowledge, capital and risk appetite. Another purpose of the course is to clarify many aspects of option strategies allowing investors to recognize their appropriateness and risk. Depending on the liquidity of the overall market and option line, maturity, in-the-moneyness, and the possibility of jumps, the bid and ask spread can be very wide. This course should help investors to determine the fair price to pay or receive. The concepts of delta and gamma hedging will be further discussed to help those investors in institutional settings to have a better knowledge of process. Prerequisites Courses in Investment, Probability and Statistics.
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- •Basics of equity options
- •Black, Scholes and Merton model
- •Factors impacting the value of options
- •Option greeks (Delta, Gamma, Vega, Theta) and option elasticity
- •Volatility, implied volatility and probability
- •Stochastic jump, volatility smile, and option skew
- •Vanilla options, their applications, and their relevance
- •Covered options, and their relevance
- •Options spread trades, and their relevance
- •Straddles and strangles
- •Option execution
- •Delta, Gamma, and Vega hedging
- •Intraday vs. closing day volatility
- •Long term options and warrants vs. short term options
- •Embedded options, and attached options vs. detached options
- •Time decay, dividend strategies and other issues associated with option investments