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FINANCIAL MARKET COURSES

Options - Managing an Option Portfolio

Option traders deal in multiple options rather than a single position, which means they are required to manage portfolios and cope with various risks associated with these portfolios. Consequently, option traders need to be aware of multidimensional changes in the market.

 

This course explains the role of an option market maker as opposed to a trader speculating on the market. The course describes in detail how the initial exposure of an option trader is hedged and looks at ways of dynamically hedging market exposure over time. The course also provides an overview of managing multiple exposures derived from the option portfolio.

  • OBJECTIVES

    On completion of this course, you will be able to:

    Distinguish between the role of an option market maker and a trader speculating on the market

    Hedge the initial exposure of an option trade

    Recognize the ways in which an option trader is required to dynamically hedge market exposures over time

    Identify and manage the multiple exposures that are derived from an option portfolio

  • COURSE OUTLINE

    Topic 1: Overview of Options Risk Management

    Trader versus Customer View

    Risk Management

    The Risks of the Trading Book

    Topic 2: Hedging the Initial Exposure

    Hedging Issues

    The Key Difference – Dynamic Hedging

    Initial Hedge

    Delta Hedge Size

    Delta Hedging – Modelling Issues

    Hedging using the Appropriate Instrument

    Correlated Assets

    Hedging Volatility Exposure

    Topic 3: Volatility/ Time Strategies

    From Single Options to Portfolios

    Call Spread

    The Challenge of Multiple Instruments

    Multiple Option Maturities

    The Options Trader’s Problem

    Bucketing

    Heat Maps

    Moments

    Topic 4: Option Management After the Initial Hedge

    Gamma

    Impact of Gamma

    Rebalancing Conundrum

    Measuring Gamma

    Options – No Free Lunch

    The March of Time

    Volatility versus Gamma

    Implied Volatility

    Fat Tails

    Skews – Smiles and Smirks

  • PREREQUISITE KNOWLEDGE

  • ESTIMATED COMPLETED TIME

    90 Minutes

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