Intro to Options
Plus CFTC bottom line
Housekeeping: Great turnout. video sometime this week. Notes attached.
CFTC bottom line:
Bank swap dealing desks are completely frozen now selling less than 800 futures in a $100 rally. They are being handcuffed and frozen pending the election.
WARNING: that means they will be helped on election night if this market spikes. BIS is keeping a ton of powder dry. DO NOT ASSUME THIS IS OVER.
The powers that be do not want Gold to be a poor reflection on the US election. they may sell it form 100 higher.. they may sell it from unchanged.. but they will sell it.. The wild card is the BRICS behavior.
Intro to Options
Today’s Textbook Topics
Textbook Definitions
Uses- (increase or decrease risk)
To make money- directional opinions, dividend/income stream
To save money- insurance, risk mitigation
Practical applications - when/how/ what/ where
Directional use- small-medium-large risk/reward
Option writing for income.. risk reward vs margin calls
Why use them (leverage and limits)
limited risk, unlimited reward- at a price (prop bets)
defined risk- at a price (insurance)
very customizable- lego blocks (embedded optionality)
P and L Graphs- structures for risk mgt at expiration and over time- ongoing
Greeks- Delta, Gamma, Theta, Vega, Rho - intro today
Volatility- separate class
Implied and realized (real/historical)
Probabilities
Smiles and curves
Skewness, Kurtosis, etc
Modelling- Black Scholes and beyond.
1- Today’s Topics
2- Textbook Definitions
A legal contract that gives the holder the choice to exercise the rights specified in it.
Call- The buyer/owner of the contract has the right/choice to purchase an underlying asset from the seller/vendor (obligated party) of the contract at a predetermined price for a specified period of timePut-The buyer/owner of the contract has the right/choice to sell an underlying asset to the seller/vendor (obligated party) of the contract at a predetermined price for a specified period of time
Real life examples
callsputspremium paid