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E-book
An Introduction to Options TradingISBN: 978-1-119-99498-5
E-book
176 pages
February 2011
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Acknowledgements.
Introduction
1. OPTIONS.
1.1 Examples.
1.2 American versus European options.
1.3 Terminology.
1.4 Early exercise of American options.
1.5 Payoffs.
1.6 Put-call Parity.
2. THE BLACK-SCHOLES FORMULA.
2.1 Volatility and the Black-Scholes formula.
2.2 Interest rate and the Black-Scholes formula.
2.3 Pricing American options.
3. DIVIDENDS AND THEIR EFFECT ON OPTIONS.
3.1 Forwards.
3.2 Pricing of stock options including dividends.
3.3 Pricing options in terms of the forward.
3.4 Dividend risk for options.
3.5 Synthetics.
4. IMPLIED VOLATILITY.
4.1 Example.
4.2 Strategy and implied volatility.
5. DELTA.
5.1 Delta hedging.
5.2 The most dividend sensitive options.
5.3 Exercise-ready American calls in dividend paying stocks.
6. THREE OTHER GREEKS.
6.1 Gamma.
6.2 Theta.
6.3 Vega.
7. THE PROFIT OF OPTION TRADERS.
7.1 Dynamic hedging of a long call option.
7.2 Dynamic hedging of a short call option.
7.3 Profit formula for dynamic formula.
7.4 The relationship between dynamic hedging and q.
7.5 The relationship between dynamic hedging and q when the interest rate is Strictly positive.
7.6 Conclusion.
8. OPTION GREEKS IN PRACTICE.
8.1 Interaction between Gamma and Vega.
8.2 The importance of the direction of the underlying share to the option Greeks.
8.3 Pin risk for short dated options.
8.4 The riskiest options to go short.
9. SKEW.
19.1 What is skew?
9.2 Reason for skew.
9.3 Reason for higher volatilities in falling markets.
10. SEVERAL OPTION STRATEGIES.
10.1 Call spread.
10.2 Put spread.
10.3 Collar.
10.4 Straddle.
10.5 Strangle.
11. DIFFERENT OPTION STRATEGIES AND WHY INVESTORS EXECUTE THEM.
11.1 The portfolio manager's approach to options.
11.2 Options and Corporates with cross-holdings.
11.3 Options in case of a takeover.
11.4 Risk reversals for insurance companies.
11.5 Pre-paid forwards.
11.6 Employee incentive schemes.
11.7 Share Buy-backs.
12. TWO EXOTIC OPTIONS.
12.1 The quanto option.
12.2 The composite option.
13. REPO.
13.1 A repo example.
13.2 Repo in case of a takeover.
13.3 Repo and its effect on options.
13.4 Takeover in cash and its effect on the forward.
Appendix A: Probability that an option expires in the money.
Appendix B: Variance of a composite option.
Bibliography.
Index.
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