Futures and Options

Markets, Analysis and Applications

Agenda Program
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Prague, NH Hotel Prague
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Futures and Options Market
Pricing and Risk Analysis of Futures and Options
Open Position and Spread Trading with Futures
Bull & Bear Strategies with Options
Market Neutral and Volatility Strategies
Hedging with Futures and Options
Hedging Market Maker Positions
The purpose of this seminar is to give you an in-depth understanding of the risk-return characteristics of futures and options and of the practical uses of futures and options in trading and risk management.

We start with an introduction to futures and options markets. We define the instruments, give an overview of markets and instruments, and we explain how futures and options are traded, settled and cleared on important exchanges such as the CME and Eurex.

We then explain in more detail how futures and options are priced. A number of important valuation models will be presented and explained, including the Cost-of-Carry model (for futures), and the Black-Scholes, Black, Garman-Kohlhagen, Cox-Ross-Rubinstein and Black-Derman-Toy (BDT) models (for options). We also look briefly at the pricing of non-financial contract types such as commodity, weather, energy and macro futures.

Further, we explain how the important risk measures such as delta, gamma, vega, rho, theta etc. are derived from these models and how these key ratios should be properly interpreted.

Having gained a good understanding of the risk/return characteristics of futures and options, we then proceed to present and discuss a number of trading strategies with futures and options. These include "open position" strategies, "spread" strategies, "bull" and "bear" strategies, and different volatility strategies with options. We also explain how to use "VIX" futures and other volatility contracts to trade volatility. These strategies will be illustrated in depth using real-life data and computer simulations.

Next, we explain how futures and options can be effectively used to hedge interest rate, FX, equity, commodity and energy risk. We give examples of simple 1:1 hedges, but also more complex portfolio hedging and ratio hedging strategies will be examined in full detail.

Finally, we explain how market-maker positions can be hedged using various techniques, including delta-hedging and risk transferring through structured products.

Program of the seminar: Futures and Options

The seminar timetable follows Central European Time (CET).

09.00 - 09.15 Welcome and Introduction

09.15 - 12.00 Futures and Options Markets

  • Futures and Options - Definitions
  • Types of Contracts
  • How the Markets Work
    • Trading, settlement, clearing, margin systems

Analysis of Forwards and Futures

  • Pay-Off Profiles
  • The “Cost-of-Carry” Model
    • Fair forward price
    • Implied Repo Rate
  • Valuing FX Forwards
    • Interest rate parity
  • Valuation of Futures in General
    • Difference between forwards and futures
    • The role of daily settlement
    • The delivery option and the CTD Bond
  • Exercises

12.00 - 13.00 Lunch

13.00 - 16.30 Analysis of Options

  • Pay-off Diagrams and P&L Diagrams
  • Minimum Option Value
  • Put/Call Parity
  • “Intrinsic” and “Time Value”
  • Simple Option Pricing Model
  • The Black-Scholes/Black Models
  • Option Price Sensitivities (“Greeks”)
  • Computer Simulations and Exercises
  • The Cox-Ross-Rubinstein Model
    • Setting up the pay-off tree
    • Valuing American call and put options
  • Valuing Interest Rate Options
    • The Black 76 model
    • The BDT and other numerical models
  • Computer Simulations
  • Exercises

09.00 - 09.15 Recap

09.15 - 12.00 Trading with Futures and Options

  • What is a “Trading”?
    • Open position vs. relative value trading
  • The Trading Process
    • Formulating expectations
    • Establishing a risk profile
    • Search and selection of strategies
    • Selecting the appropriate contract (strike, maturity etc.)
  • Open Position Trading
  • Bull Strategies
    • Long future, long call, bull spread, long semi-future,…
  • Bear Strategies
    • Short future, long puts, short calls, bear-spreads,…
  • Computer Simulations

12.00 - 13.00 Lunch

13.00 - 16.30 Trading with Futures and Options (continued)

  • Volatility Strategies
    • Butterflies
    • Straddles
    • Strangles
    • Condors
  • Workshop: Design Butterfly
  • Workshop: “Twin Peaks”
  • Spread Trading
    • “Straddles”
    • Intra-market spreads
    • Inter-market spreads
    • Calendar spreads
  • Follow-up Strategies
  • Exercises

09.00 - 09.15 Recap

09.15 - 12.00 Hedging with Futures and Options

  • What is Hedging?
  • The Hedging Process
    • Identifying risks
    • Quantifying risks
    • Choosing hedging instruments
    • Calculating the hedge ratio
    • The importance of basis risk
    • Implementation and follow-up
  • Single Position “One-to-One” Hedge
  • Hedge with futures, put options or call options?
  • Portfolio Hedging
    • Hedging a portfolio of stocks
    • Hedging a portfolio of bonds
    • Hedging a currency position
    • Hedging uncertain cash flows
    • Hedging contingent cash flows

12.00 - 13.00 Lunch

13.00 - 16.30 Hedging with Futures and Options (continued)

  • Dynamic Hedging Strategies
    • Pro-cyclical and counter-cyclical strategies
    • Constant Proportion Portfolio Insurance with Futures
  • Hedging with Weather, Energy, and Macro Futures and Options
  • Hedging of Market-maker Positions in Futures and Options
    • Hedging futures with repos/cash instruments
    • Delta-hedging of options positions
    • Hedging of gamma and vega risks
  • Exercises

Evaluation and Termination of the Seminar

Training catalogue in PDF
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