This course is designed to put delegates in the options market-making chair. Options market-making has for a long time been a mystery to most market participants and observers, and yet this specialist skill is vital in supporting price liquidity across all asset classes. Whilst most brokers, traders, exchange staff and analysts have at some time asked for an option price, they have no idea how the market-maker calculates that price, or indeed whether it is a fair price. There is also very little understanding of how a market-maker lays off one trade against another, or indeed how he risk manages his resulting portfolio. Via a blend of classroom teaching and the use of unique trading simulation software, delegates can now gain a practical understanding of what is to be an options market-maker.
The trainers have extensive practical experience of options market-making in fixed income, equities and commodities. This real world experience, combined with the trading simulation software, provides for the first time an opportunity to gain insight into this vital market activity.
|Price||£850 + VAT|
Who Should Attend
Traders, brokers, risk managers, middle and back office staff, exchange staff and officials, regulators, fund managers and end-users (equities, fixed income and commodities). Delegates should ideally have some existing knowledge of options i.e. call and put definitions; basic strategy definitions (e.g. call and put spreads, straddles and strangles); basic understanding of delta. All these subjects will be covered in the first session, but some existing knowledge will be helpful.
- Discussion of option pricing basics: intrinsic and time value, put/call parity
- Understanding option pricing inputs: underlying, time, interest rates, volatility
- Volatility is the key variable: definition, types and uses
- Implied volatility and volatility skew
- Demonstration/practice session on the trading simulator: calculating prices; how to respond to broker requests; understanding trading limits, in terms of the option greeks; understanding delta hedging and skew
- Delegates enter the market. An algorithm produces a simulated market and price requests. The delegates speak to virtual brokers via a message window. Each delegate will be set position/risk limits and will be expected to stay within those limits.
- The market opens and price requests for calls and puts begin to come in from brokers
- Delegates calculate and offer prices to the brokers
- You have been 'hit', what now?
- Calculating and executing the delta hedge
- You have a position, but are you long or short of volatility; what are market conditions?
- More requests from brokers. How do you adjust your prices in light of recent trades?
- You have been hit on more prices. What is your position now? Are you within your limits?
- Session end: how did you do? Did you make money? Did you stay within your trading limits? Did you respond to enough price requests? Are you long or short volatility at the close of business?
During this session brokers will request prices in additional strategies e.g. straddles and strangles. Market speed will increase.
- The market opens. Price requests for calls, puts, strategies come in from brokers
- You build a long vol position by shading prices to become a net buyer of options
- You receive instructions from your risk manager to cut the long vol position. You must adjust your prices to facilitate position reduction
- Session end: how did you do? Did you make money? Did you make or lose money when you were instructed to cut the position? Did you respond to enough price requests? Are you long or short volatility at the close of business?
- Workshop wrap-up. Discussion and examination of the trading sessions.