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.

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
• computer 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
• computer 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
• computer 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
• computer Hedging FX risk
• computer 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
• computer Directional and volatility trading with currency options

When and Where
   13 Jan 2025 - 16 Jan 2025
   a.m. sessions – 08:00 to 12:00 (for Asia / EMEA participants)
   p.m. sessions – 13:00 to 17:00 (for EMEA / Americas participants)
   All times are GMT (London time)
   Virtual
   Derivatives

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Other Dates and Locations
Search for Foundations of Currency Options in our course schedule for alternative dates and locations where this course is offered.