This course covers the fundamentals of options. The basic definitions and specific terminology of option contracts, both calls and puts, are clearly defined along with their basic expiry payoffs. Types of options, such as American and European, are discussed along with premiums, margins and how and where option contracts trade. The sources of an option's value, specifically an option's intrinsic and time values are examined. The factors that affect the price of an option, including interest rates, volatility, and time, are identified and explained. The participant will use computer software to examine the pricing of an option and the sensitivity of an option's price to changes in interest rates, volatility and time. The uses of options in risk management and trading are examined along with the risks. The Greeks are also introduced and defined.

Objectives

By the end of the course, the participant will be able to:

• Identify the key terms of an option contract
• Explain an option contract's expiry payoff, intrinsic value and time value
• Identify the market factors that affect the price of an option
• Use computer software to price an option
• Use computer software to see how changes in interest rates, volatility and time affect the price of an option
• Explain how options are used in risk management and their associated risks
• Understand the credit risk in over-the-counter options
• Define the Greeks
• Identify Bloomberg pages that market practitioners use

This course is designed for

• People joining an option trading desk
• Equity and fixed income cash traders and salespersons with no options experience
• Trader support people, risk managers and operations managers with little or no options knowledge