Foundations of Currency Options

Description

The Foundations of Currency Options course is a highly practical seminar taking participants from the essentials of FX options through to their use for hedging and trading.

Learning Outcomes

By attending this course, you will:

  • Explore the principles of forward FX rates and the fundamentals of options
  • Obtain an intuitive understanding of option pricing, the different kind of pricing models which are used, and the significance of volatility
  • Investigate the behaviour and characteristics of FX options, and how FX options differ from other FX products like forwards
  • Understand the primary Greeks, and why they are important for all option users
  • See what differentiates FX options from options on other underliers
  • Explore how FX options can be combined in different ways to create spreads, straddles, strangles, and other structures
  • Examine how vanilla FX options can be combined to build targeted hedges, or to exploit specific views of the market
  • Develop an innovative and pro-active approach to the handling of FX risk management needs
  • Obtain first-hand practical experience with computer-based strategy evaluation, graphics, analytics, option pricing, and simulation

Who Should Attend

Anyone working in FX risk management, currency sales and trading, companies with multi-currency operations, or those advising clients on managing their FX risk.

CPD Credits

14 hours

Prerequisites

A good working knowledge of the FX spot and forward markets.

Seminar Content

Review of Foreign Exchange Forward and Swaps
  • Outright forwards and swaps
  • Impact of interest rates
  • Relation between spot and forward markets
  • Quoting forward rates and swap points
  • Forward discounts and premiums
  • FX swap points and interest rate parity
  • Risk from FX swap transactions
Review of Options
  • Options definitions and terminology
  • Calls and puts; buying and selling
  • American vs. European style
  • In-, at-, and out-of-the-money
  • Intrinsic and time value
  • Components of time value
  • What the buyer pays for – the true cost of an option
  • Value and profit profiles
  • Profit profiles at maturity
  • Profit profiles prior to maturity
Option Pricing – An Intuitive Approach
  • Types of option pricing model
  • Currency option pricing workshop
  • Binomial option pricing
  • Monte Carlo option pricing
  • Time value revisited
  • Early exercise of American options
  • Put-call parity
  • Significance of volatility
  • Historic, implied, and experienced volatility
  • The term structure of volatility
  • Volatility smiles and skews
Option “Greeks”
  • Measuring dimensions of option risk
  • Delta – the hedge ratio
  • Gamma – the change in delta
  • Theta – the decay of time value
  • Vega – the sensitivity to volatility
  • The Greeks of short-dated options compared to long-dated options
  • The Greeks of ATM options, compared to ITM or OTM options
  • Greeks workshop
Understanding FX Options
  • Calls are Puts!
  • FX option trading conventions
  • Dates: premium payment, expiry, and settlement
  • Tokyo vs. New York cuts
  • Quoting volatility
  • Quoting deltas
  • Live options vs. delta exchange
  • The 25 D strangle
  • Risk reversals
Building Option Portfolios
  • Horizontal, vertical, and diagonal spreads
  • Straddles and strangles
  • Ratio spreads and backspreads
  • Designing your own structure – a fluent transition between payoff diagrams and component parts
Hedging and Financial Engineering with FX Options
  • Comparison of using in-, at- and out-of-the-money options
  • True cost of options hedging – time value
  • Hedging techniques using short option positions
  • Creating and using collars or risk reversals
  • Creating and using spreads
  • Zero-premium hedges
  • Creating and using zero-cost collars
  • Creating and using participating forwards
  • Deferred and embedded premiums
  • Creating and using break-forwards
  • The “continuum” from in-the-money to out-of-the-money options
  • Hedging FX risk
  • Financial Engineering with Currency Options
Option Trading Strategies
  • Directional vs. volatility trading
  • Directional trading strategies
  • Near vs. far dates
  • Out-of-the-money vs. in-the-money
  • Options vs. cash
  • Volatility trading strategies
  • Directional and volatility trading with currency options

Dates and Locations

Date
Date(s): 29 Apr 2019 - 30 Apr 2019

Location
London

Category
Derivatives

Other Dates and Locations
Check our course schedule for alternative dates and locations where this course is offered.


   Note that the course fee of £1,830.00 already includes 20% VAT.

£1,830.00


ACF specialises in creating tailored courses for our clients. Fill out the details below to obtain more information on how to run a customised version of this course in-house for your firm.

Fields marked with * are required