OMX-The Nordic Exchange invites you to a unique opportunity to recieve education from International Trading Institute (ITI Chicago) right here in Stockholm. In the last week of August we offer you a one week training about options and option trading, tailor made for sales traders and portfolio- and risk managers. The training is guided by active traders and internationally well recommended trainers.

The courses will be held in:              

Stockholm:

August 25-29, 2008

London:

August 11-15, 2008

Registration Stockholm

Registration London

Brochure 

This workshop takes a practical view of trading and risk management. It is designed to give the participant the tools to identify market opportunities and "false market cues". Risk Management aspects of trading options are broken down into incremental units for the student.

On days 2-5, lectures will be followed by simulated trading labs to reinforce concepts learned in the lecture portion of the workshop. The following labs will be included.

Lab one: reversals, conversions and combos
Lab two: gamma scalping
Lab three: call and put verticals
Lab four: call and put time spreads


1. S.P.E.N.D. N.I.L.
(checklist for assessing all types of risk while adding or reducing elements of position)

a. Skew risk: Avoid being long upper strike options vs. short lower strike options (or vice versa)
b. Pin risk: Avoid the dilemma of uncertainty regarding exercise versus assignment of positions surrounding the at-the-money expiration
c. Exercise: Excerise opportunity and assignment risk in American-style options
d. Net units: Desired to have net long calls and puts to avoid open ended exposure: including synthetic options generated by underlying position
e. Derivatives: Assessing sensitivity to delta, gamma, theta, vega
f. Nuances: Characteristics of Particular Contract
g. Interest: Money and banking aspects. Stock borrowing and lending (Repo), "specials", risk with futures margin variation
h. Liquidity: Assessing contract volume and open interest in order to avoid exceeding manageable and proportional share.

2. Components of an Option’s Assessed Value

a. Underlying price
b. Strike price
c. Time until expiration
d. Interest rate
e. Dividend
f. Implied volatility
g. Skew

Breakdown of Black Scholes model

This section is especially important for students from a "screen" environment with thin and transparent markets. It forces the market participants to not rely on taking the theoretical prices as "given" or "good". The main point of this section is to demonstrate why various theoretical models are still valid for a benchmark, but may still not be a reflection of the market price.


3. Derivatives (graphs and explanation made instinctive)

During this lecture the "Greeks" are defined and their inter-relationships are explained. This is unique in that derivatives are usually explained as stand-alone entities. This section will require the students to appreciate how the dynamics of each component affects the others.

a. Delta
b. Gamma
c. Vega
d. Theta


4. Conversions and Reversals

a. Structure
b. Profit motive-synthetic borrowing and lending
-Interest rate
-Conversion calculation
-Comparison of models
c. Pricing equations
-Equities
-Futures
d. Adjustments


5. Making Markets and Pricing Options Using Synthetics

A core component in the ability to arbitrage and the ability to make independent market quotes is the ability to understand the concepts of conversions, reversals and synthetics. They are also invaluable tools in capturing profits or limiting losses in thin markets where no counter party will trade out of an option without extracting a huge premium

a. Synthetic call
b. Synthetic put-bye/write
c. Synthetic underlying-combo


6. Converting Positions and Understanding the Nature of Risk

A primary job skills of any trader, especially one that must accommodate a customers business, is the ability to insulate portions of an overall positions from and to able to identify what really are the book’s true vulnerabilities. Too many times a trader does not have a "game plan" of what to do avoid trouble and what to do should it occur. This section focuses the students on creating and maintaining a plan to capture and to limit losses.


7. Doorways to Reduce Exposure

The strategies that follow are presented in a manner which illustrate how different types of spreads can be used to reduce risk without forgoing market opportunities and to increase a trader’s menu of choices during various trading scenarios. The main distinction between and end-user and a market maker is that, unlike a customer, a market maker has to accept order flow and cannot always choose when, or when not to trade. A market maker also has to be more aware of the impact of changing interest rates and other pricing components on his existing option positions. This section demonstrates how to manage a fluid option portfolio from a market maker’s perspective.


8. Straddles and Strangles

Reasons to buy or sell "premium" are discussed, as well as an in-depth session on how to manage a long or short "premium" position.

a. Synthetic straddle
b. Synthetic ratio straddle as a scalping vehicle


9. Verticals

a. Structure
b. Profit motives
c. Sensitivity
d. Skew effects
e. Risk reversals


10. Butterfly Spreads

Used as a filter to identify risk within a position, the butterfly can help pinpoint areas in which modifications need to be made.

a. Structure
b. Sensitivities
c. Condors
d. Iron butterfly
e. Introduction to butterfly breakdown


11. Time Spreads

Time spreads can be an invaluable tool for managing positions, as well as helping in risk identification when viewing the position as a whole.

a. Structure
b. Profit motives
c. Sensitivity


12. Strategies to Lock in Profits and Reduce Portfolio Risk

a. Box spreads
b. Jelly Rolls
c. Structure
d. Profit motive
e. Sensitivity
f. Associated risks


13. Position Breakdown for Portfolios

This portion of the workshop is the culmination and combination of all the material covered to this point. This teaches the trader how to look at a position or portfolio and to organize it in a way that allows them to pinpoint risk. This is a very valuable tool for managing risk.

a. Quantifying and viewing risk in terms of extrinsic value
b. Optimal trade neutralization


14. Volatility

a. Exploring the different types of volatility and their limitations.
b. Gain the ability to calculate volatility and convert to the appropriate time frame
c. Historical
d. Implied
e. Seasonal
f. Forecast
g. Assess the volatility
-Examine volatility skew by isolating the variables of a distribution
-Compare the two major types of skews between supply-side products
-Study the volatility skew over time and examine the expiration phenomena known as the "smile"
-Recognize shifts in volatility and examine different spreads and how an option’s book changes with the various shifts
h. Volatility Cones
-Construct tools to analyze volatility in relation to historical volatility
-What can be learned from volatility cones?
i. Use calendar spreads to exploit the differences in the term structure of volatility
j. Explore vega in detail
-Review how all "Greeks" change as volatility of certain key indices such as the Chicago Board Options Exchange VIX
k. Nuances
-Weekend Effect
-Earnings Trading
-Expiration Trading
-Mergers/Takeovers


15. Gamma Scalping

Gamma Scalping is the buying and selling of the underlying security in order to replicate the payoff of an option position. Students will learn to manage a position’s risk as the underlying moves and alters the Delta of the portfolio.


Gamma Scalping covers the applications of the followings strategies:

a. How to build positions that profit from movement or lack of movement
b. How option prices react to changes in stock price, implied volatility and time until expiration
c. The "Greeks", what they are and how to use them
d. How to apply long gamma positions to specific scenarios
e. The risk of long and short gamma positions
f. Methods for adjusting gamma positions to maximize profit
g. Real-life scenarios illustrating gamma positions and adjustment options


16. Portfolio Management through the Use Option Position Risk Runs

a. Position breakdown using the "Greeks"
b. Evaluate a position with respect to raw volatility and calendar risk
c. Analyze a risk run to extract portfolio skew risk


17. Trade Selection and Management

Students will analyze several market scenarios and select the proper position base on expected directional volatility changes. Performance of traders will then be examined with respect to changes in underlying, volatility and time

a. Directional Strategies
-Bullish and bearish positions under low, average and high volatility regimes
-Limited risk/unlimited reward versus unlimited risk/limited reward strategies
b. Non-directional Strategies
-Using volatility to select positions while maintaining delta neutrality
-Limited risk/unlimited reward versus unlimited risk/limited reward strategies