The Greeks & Option Risk Management

This course gives participants a deeper understanding of option pricing. It looks at the importance of volatility in option pricing and how this can be implied from the value of the other components of option pricing. It explains the “Greeks” in more detail and how these are important to option trading and hedging. It explains how both delta and gamma can be calculated so that you can take a trading position based on your view of the movement in both of these. It also looks at how delta is used to ensure that a hedge continues to give you the protection against further movements in the underlying financial instrument on which it is based.


For individuals with a working knowledge of options

Learning Outcomes

At the end of this course delegates should understand_x000D_
– Implied option volatility, smile, skew, surface and trade feasibility_x000D_
– The role and importance of the Greeks in option trading_x000D_
– How to delta hedge a book and the process of gamma trading

Course Content

Implied Volatility
‐ Implied vol. as a value indicator
‐ Implied vol. term structure
‐ Smile & skew
‐ Surface

Exercises: Calculating and interpreting volatility

The Greeks
‐ Theta
‐ Delta
‐ Gamma

Trade Feasibility
‐ Pricing off observed implied vol.
‐ Pricing off historic vol.

Delta Hedging a Book
– Worked example

Exercises: Calculating net delta trade for a trader’s book

Gamma Trading
‐ Gamma behaviour
‐ Making money out of gamma

Exercises: Calculating the delta hedging and gamma trading required on a range of option trades


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