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Seminar: Timely Topics for Today’s Business World
Mr. Bernstein
Options
January 15, 2015
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Seminar: Timely Topics for Today’s Business World
Mr. Bernstein
CallsThe right, but not the obligation, to purchase an asset
Underlying Asset – what you can buyStrike Price – what price you will payTime to Maturity – when the option expires
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Seminar: Timely Topics for Today’s Business World
Mr. Bernstein
Payout patternFor Long Callsat maturity
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Seminar: Timely Topics for Today’s Business World
Mr. Bernstein
PutsThe right, but not the obligation, to sell an asset
Underlying Asset – what you can buyStrike Price – what price you will payTime to Maturity – when the option expires
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Seminar: Timely Topics for Today’s Business World
Mr. Bernstein
Payout patternFor Long Putsat Maturity
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Seminar: Timely Topics for Today’s Business World
Mr. Bernstein
Payout patternFor Short Callsat maturity
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Seminar: Timely Topics for Today’s Business World
Mr. Bernstein
Payout patternFor Call Spread(Long Call +Short Call)at maturity
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Seminar: Timely Topics for Today’s Business World
Mr. Bernstein
Payout patternFor Short Putsat Maturity
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Seminar: Timely Topics for Today’s Business World
Mr. Bernstein
Options can be imbedded into other securitiesExample:Buy Bond;Use coupon $to buy 3 calls <Mitts payout diagram>and sell 1 put…
And Viola! youget an attractivepayout profile
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Seminar: Timely Topics for Today’s Business World
Mr. Bernstein
Options Pricing is based on:Price of Underlying AssetStrike PriceTime to ExpirationDividends / Interest RatesVolatility of the Underlying Asset
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Seminar: Timely Topics for Today’s Business World
Mr. Bernstein
Options Pricing is based on:Price of Underlying Asset - KNOWNStrike Price - KNOWNTime to Expiration - KNOWNDividends / Interest Rates - KNOWNVolatility of the Underlying Asset – IMPLIED
”Implied Vol” - a measure of richness ”Implied Vol” – can be compared to historical
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Seminar: Timely Topics for Today’s Business World
Mr. Bernstein
Option Pricing & Analytics on Bloomberg (OMON)
Bid, Offer, Implied Vol, Delta,Volume, Open Interest andother measuresfor various strikesand maturities
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Seminar: Timely Topics for Today’s Business World
Mr. Bernstein
Options Pricing “Greeks”:Delta: Change in price of option relative to change in price of underlying assetGamma: Change in the Delta of option relative to change in price of underlying asset Theta: Decay in Time ValueVega: Change in price of option relative to change in Implied Volatility
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Seminar: Timely Topics for Today’s Business World
Mr. Bernstein
Options Pricing “Greeks”:Options portfolios must manage their exposure to Delta, Gamma, Theta and VegaSophisticated managers can see Greeks on
individual and overall portfolio basis
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Seminar: Timely Topics for Today’s Business World
Mr. Bernstein
Time decay:Theta
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Seminar: Timely Topics for Today’s Business World
Mr. Bernstein
Options Pricing “Greeks” (OMVE function)
Input the known pricing factors such as asset, price, strike, maturity, anddividend/interest rate
Model delivers Greeks