Learn. Commodity Options Trading & Risk Management ORM2. Commodity Derivatives Strategy

Commodity

Options Trading &

Risk Management

• Limited to very small class size to

maximise learning potential

• Option valuation

• Commodity options risk management

• Commodity options trading strategies

• Managing your option portfolio

• Modelling spreadsheets provided for

you to keep

Commo

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y Deriv

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Course leader:

Neil Schofield, B.Sc, MBA, FCIB, DipFS

October 14/15, 2015

Geneva, Switzerland

2 days of intensive and

comprehensive options/risk

management training with

practical analysis of option trading

strategies and risk management

with an energy/soft commodities

perspective

This course provides delegates with a comprehensive and practical analysis of option trading and risk management from a commodity perspective. Participants are assumed to be conversant with basic option terminology

Neil is Managing Director of a UK-based firm that specializes in providing training in financial markets and all of the major asset classes and their respective derivative products. He is also a Visiting Fellow at the ICMA Centre. Previously, he was Global Head of Financial Markets training at Barclays Capital.

Neil started his training career at Chase Manhattan Bank, where he was employed as an internal auditor for nine years. During this time he conducted numerous internal and external training seminars with clients including the Bank of England and the Federal Reserve System in the USA. He has also held positions with Security Pacific Hoare Govett (now trading as Bank of America) and Lloyds Banking Group.

He holds a BSc in Economics from Loughborough University and an MBA from Manchester Business School. He was elected as a Fellow of the IFS School of Finance (formerly the Chartered Institute of Bankers) in 1999.

Neil is also author of the books ‘Commodity Derivatives’ published in 2007 & “Trading - Relative Value Guide’ published in 2010. He is currently working on two new texts “trading inflation” and “equity derivatives: markets and applications”

Ask about running this course in-house

Tel: +41 (0) 22 321 7480

C O M M O D I T Y O P T I O N S & R I S K M A N A G E M E N T

G L O B A L T R A I N I N G

G R O U P

About the Course Director, Neil Schofield, BSc, MBA, FCIB, DipFS: About this training course:

Commodity

Options Trading & Risk

Management

Review of fundamentals

• Recap of option terminology

• Intuitive approach to option valuation

• Principles of Black Scholes Merton

pricing

• Pricing options on commodities

using the Black (1976) model.

• Principles of binomial pricing

• Put – call parity

Option risk management

Delta

• Definition

• Characteristics - Delta and time to expiry - Delta and implied volatility

Gamma

• Definition • Characteristics

- Gamma and the underlying price - Gamma and implied volatility - Gamma and time to expiry

Vega

• Definition • Characteristics

- Vega and the underlying price - Vega and time to expiry - Vega and implied volatility

Theta

• Definition

• Gamma vs. theta

• Characteristics

- Theta and the underlying price - Theta and implied volatility - Theta and the time to expiry

An introduction to option trading strategies

• Managing delta and gamma

• Pin risk

• Directional strategies

- Bull / bear spreads

• Volatility strategies

- Straddles

Email: [email protected]

Web: www.globaltraining.ch

• Volatility smiles • Volatility skews - Precious metals - Energy markets - Industrial metals - Agriculture

• Why do smiles and skews exist?

- Fat fails?

- Trader gamma hedging activity

• Characteristics of skew

- Skew vs. underlying price

• Describing volatility smiles

- Sticky strike

- Volatility as a function of the option’s strike

- Sticky delta

- Volatility as a function of the option’s delta

• Volatility term structures

- Why does term structure exist? - Term structure vs. underlying price

• Expressing views on implied volatility

• Absolute level of volatility - Straddles

- High sensitivity: level of volatility - Low sensitivity: dVega/dSpot & dVega/dVol

• Steepness of skew / smile - risk

reversals

- High sensitivity: dVega/dSpot - Low sensitivity: level of volatility & dVega/dVol

- Concept of skew theta

• Convexity of skew / smile - Butterflies

- High sensitivity: dVega/dVol - Low sensitivity: level of volatility & dVega/dSpot

G L O B A L T R A I N I N G

G L O B A L T R A I N I N G

G R O U P This course will include the use of a number of spreadsheet applications, which participants will be able to keep after the course:

The above example shows a vanilla and exotic option pricing spreadsheet which will be used during the course. The spreadsheets will be used to familiarise participants with the intuitive foundations of option valuation & associated measures of option risk management.

A multi-asset class structuring spreadsheet for creating hedging and trading strategies will be used to introduce the fundamental rationale for some popular option trading strategies. It will allow the participants to perform “what if” analysis on a variety of individual option trading strategies.

During the course, a portfolio risk management simulation (see above) will be used to create a portfolio of options which will then be analysed with respect to their exposure to implied volatility. The portfolio will include options with different maturities:

• Long term (options > 1 year)

• Medium term (options of about 3 month maturity) • Short term (options of about 1 week to expiry.

This will allow the participant to investigate the way in which the option Greeks of vega, theta and gamma interact.

Specification Version Type Call Spot Price S 100.00 Strike Price X 105.00 Expiry (yrs) T 0.25 1 1

Funding Rate r 2.00% 1 Call 1 Gen-BSM

Yield b 5.00% 2 Put 2 Black-77

Volatility  20.00% _{1 OFF} 1

Price 2 Delta

Premium 1.81 3 Gamma TRUE

Forward 99.25 4 Theta_{5 Vega} 105

Greek Sensitivities 6 Rho —Delta  0.3000 7 dVega/dSpot

— Gamma  0.0346 8 dVega/dVol — Theta  -0.0164

— Vega  0.1724

— Rho  0.0703 Axis Setting dVega/dSpot 0.0079 dVega/dVol 0.0011 Underlying Price Minimum 84 Maximum 126 Charts

Greek Surface OFF Expiry (yrs)

Minimum 0.00 Maximum 1.00

Vanilla Options

Implemented by: Circle of Influence Solutions

-5.00 0.00 5.00 10.00 15.00 20.00 25.00 84.00 94.00 104.00 114.00 124.00 Pr em ium Underlying Price Premium at Expiry Premium Prior to Expiry

-0.2000 0.0000 0.2000 0.4000 0.6000 0.8000 1.0000 1.2000 84.00 89.00 94.00 99.00 104.00 109.00 114.00 119.00 124.00 Gr eek Sensitiv itie s Underlying Price Delta Gamma Theta Vega Rho Options risk management

spreadsheet modelling applications for you to retain for your own use...

C O M M O D I T Y O P T I O N S & R I S K M A N A G E M E N T

Pricing Screen

Game Date 30-Mar-14

Game Day 1 Deal Input 3 Style European Position Long Type Call

Strike 61.35HKD per Share Notional 1mShares Maturity 3m Expiry 91days Expiry Date #NAME?

Delta 0.519 Ping An Insurance Game Controls

Gamma 0.065

Vega 0.122 Spot 61.35HKD per Share Active Scenario: None

Initial Cash Flow (2,437,479)HKD Yield 0.81%

Premium 2.437HKD per Share Volatility 20.00% Forward 61.35HKD per Share Net Portfolio Delta 0Shares

Including this deal #NAME? Shares Funding Rate 0.80%

FX FALSE

FX Conversion 1

Circle of Influence (COI) Solutions Limited. © 2013.

Admin Admin Deal Option New Game Mid-Day Revaluation Day-End Revaluation /

Next Trading Day

(4,000,000) (2,000,000) 0 2,000,000 4,000,000 6,000,000 8,000,000 10,000,000 12,000,000 49.08 54.08 59.08 64.08 69.08

Portfolio & Deal Impact Existing Portfolio New Portfolio (incl. Deal)

Advance Game End Game

G R O U P

& Risk Management for Traders

Geneva, Switzerland

October 14/15, 2015

Course fees do not include travel and accommodation. Refreshments and lunch are included. Full administration information, joining instructions and your invoice will be forwarded to you once we receive your registration. For this event taking place in Switzerland, you will be charged Swiss VAT (8%). This course runs from 9.30 am – 4.30pm (both days 1 & 2).

Cancellation: You may cancel your registration at any time up to three weeks prior to the event without charge & we will refund your

registration fee in full, less a small administration charge. If you cancel within three weeks of the event you may transfer your place free-of-charge to a colleague, or you must pay in full. By singing the ‘signature’ field - you agree to these terms, and register your delegates. WE CAN RUN THIS COURSE FOR YOU IN-HOUSE: CALL US FOR MORE INFORMATION: +41 (0) 22 731 4450

NOTES

Follow GTG online • To pay by credit card, please register online at www.globaltraining.ch/register

• To pay by bank transfer, please register online at www.globaltraining.ch/register or fill out this form, scan it and email it to us at [email protected]

• VERY SMALL CLASSES: PLACES ARE STRICTLY LIMITED TO TO MAXIMISE LEARNING POTENTIAL

Name Name Delegate 3 Name Delegate 2 Delegate 1 Job Title Job Title Job Title Email Address Email Address Email Address Organization Country Postal Address Telephone No. Fax No. Signature Postal Code

Contact Name Contact Email

DELEGATE DETAILS PRICING OPTIONS

REGISTRATION Standard rate 2650 CHF

Additional Multiple delegate booking rate 15% discount (two or more delegates)

prices in Swiss Francs (CHF) please tick the appropriate option

Use a promo code if you have one

PLEASE NOTE: If you are booking for someone else, then please provide your name and email address here, and then their details in the “Delegate Details” section. Thank you.

ORM2