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A Trader's Guide to Options Trading


Objective: a 3-day comprehensive no "black-box" seminar to value/structure and most notably to trade options in the real world and to optimally manage P&L for position keeping and investment, and:

·     focuses on every aspect of valuation and trading of options

·    examines in detail the implication of various hedging methods and strategies

·     examines in detail pay-out profiles and structuring for investment and risk/return profile management

·     thorough treatment of valuation assumption, valuation methods with many worked examples

Will learn  to answer questions like:

·     how to price options with various methods, and the implications

·     understand the behaviour of options value and real world P&L

·     gain thorough understanding of hedging/positioning in the real world, and to maximise holding period risk-adjusted returns

Audience: market professionals with at least 1-year of experience

·      Traders, sales, support,

·      Management, treasurers,

·      Risk Management

Table of Contents

1)      Overview: consideration of the big picture and objectives of securities and derivatives valuation and risk management and the frame work for spot and forward instruments and the concept of arbitrage valuation.

2)      Options Basics: introduction to traditional and vanilla options pay-out profiles, as well consideration of common (vanilla) options structures and uses/abuses.

3)      Valuation Basics: examining pricing under uncertainty using quantitative methods and models used to represent stochastic (uncertain) processes and the applications to finance expressed in clear down-to-earth terms and including a review of statistical and probabilistic concepts.  This section culminates not only with a clear understanding of the fundamentals of all pricing models, but also  worked examples of pricing a vanilla call and put options with Monte Carlo and Binomial Tree techniques.

4)      Market Convention Methods for Options Pricing: Black-Scholes Option Pricing, Black Scholes case explained in detail (:where it comes from and what it means, Risk neutral process, Using the B-S Equation, Properties of the B-S Equation, Black-Scholes can FAIL for risk management), The Monte Carlo Method version of Black-Scholes, Binomial Tree Option Pricing in a Black-Scholes world.

5)      Market Convention Methods for Options Hedging: Sensitivity and the "Greeks", Black-Scholes Greeks, Sample “Bucket” Report, Dynamic vs Static Hedges and Sensitivity vs. Profile Hedges (Delta hedging, Pyramid Hedging, Static Profile Matching, Dynamic Profile Matching, Rules of Thumb for Dynamic/Static vs. Sensitivity/Profile)

5)      Volatility Basics: Quantifying uncertainty, Characterising Volatility, Implied Volatility, Volatility Skew, Term structure of volatility, Advanced volatility concepts (forecasting volatility, a glimpse at cheap/dear analyses, implied distributions), Some real world effects, Correlation and Covariance.

6)      Portfolio Simulation: introduction to simulation techniques for assessing trading strategies of a position/portfolio over a holding period, case study of a vanilla call option position hedging strategy analyses including both back-testing and forward-testing.

7)     Complex Options: qualitative review of each of  the "usual suspects": Asian, Digital, Barrier, Lookback, Chooser, Compound, Spread, Quanto, etc as well examination of embedded (e.g. callable bond) and structured (convertible bond) products.

8)     VAR, Credit, and Regulatory Issues: an introduction to the salient aspects of operations and management of options portfolios, including VAR analyses, Credit implications, and interaction with regulators and regulatory matters.


865 Pages of comprehensive and extensively illustrated Handout Notes (see samples here)

Plus copies of relevant TG2 Books/e-Books

Note: Seminars can be tailored to your trading, risk, client, and systems needs.  Submit your needs, and/or "cut/paste" from other Seminars (see entire "standard" list HERE)

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Last modified: July 25, 2011