This intermediate course concentrates solely on equity options. The uses of equity options are examined with specific focus on hedging, asset allocation, indexing and speculation. Hedging strategies are explored in depth and will cover protective puts, put spreads, collars and option writing. Different trading strategies are analyzed, such as spread and directional trading, and the course participant will use specifically designed software to analyze different options positions. Option pricing and valuation will be covered in depth. Probability is introduced leading into a discussion of the binomial pricing model. Volatility and its importance to option pricing is explained. Historical volatility, implied volatility and volatility curves are explored. Normal distributions, price relatives and lognormal price distributions are examined followed by an in depth look at the Black-Scholes model. Finally, the Greeks are interpreted and what role they have in option valuation is analyzed. Specially designed software will be used to manage a dynamic delta hedge.
Objectives
By the end of the course, the participant will be able to:
- Describe how equity options are used for hedging, speculating, indexing and asset allocation
- Implement hedging strategies such as protective puts, put spreads, collars and option writing
- Explain different trading strategies, such as spread and directional trades
- Price and value options
- Explain the binomial pricing model and how it is used to price options
- Examine historical volatility, implied volatility and volatility smiles
- Explain the Black-Scholes pricing model
- Describe normal distributions, price relatives and lognormal price distributions
- Interpret and analyze the option Greeks
- Use computer software to dynamically manage an options position and delta hedge
- Identify Bloomberg functions used by market practitioners
This course is designed for
- Equity portfolio managers
- People supporting an equity portfolio
- Auditors and examiners for equity portfolios using options
