Course description
Foundations of Currency Options
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.
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Upcoming start dates
Choose between 3 start dates
Suitability - Who should attend?
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.
Outcome / Qualification etc.
CPD: 14 hours
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
Training Course 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
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Expenses
- London: £1,575.00 (plus VAT)
- New York: $1,950
- Virtual: £1,425 (plus VAT)
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