This intensive and interactive 2-day course provides participants with practical and relevant knowledge of the commodity options markets. No existing knowledge of options is required. The course moves from basics to more advanced concepts such as delta hedging and the 'Greeks'.
Real-world examples and trading tools are used throughout the course. Participants undertake a variety of exercises and are encouraged to challenge their own knowledge and ability
ICE Connect provides real-time option pricing as well as price modelling and portfolio risk analysis.
Volcube, our unique, proprietary software provides an introduction to the complex world of option market-making.
Suitability - Who should attend?
- Personnel from the commodity market, trading companies and other individuals who wish to gain an understanding of commodity options and their uses
- Risk management and financial departments of commodity producer and commodity trading companies
- Commodity supply and distribution companies
- Major commodity consuming businesses
- Trading companies, banks, brokers, government, regulators and associated organisations
Training Course Content
- Option classes - calls and puts
- Everyday examples of optionality
- Key option features
- Formal definitions
- Contract specifications
- Specific features of commodity options
- Exercise and assignment - proactive vs reactive
- European vs American-style options - a significant distinction?
- Understanding why options are not exercised before expiration
- Options evolution
- Hedging with options vs hedging with futures/forwards
- Hedging with outrights vs hedging with 'collars'
- The hedging decision process - developing a hedging decision tree
- Case studies - group exercises on the hedging decision
- Speculation with options vs speculating with futures/forwards
- Precise tailoring to optimise the speculative decision
Option price and value
- Intrinsic and time (extrinsic) value
- Put/call parity - definition, real market examples, explanation
- 'Money-ness' - in/at/out of the money
- The four key option pricing factors
- Each pricing factor and significance in detail
- Introducing volatility - the key option pricing factor
- Implied volatilities in real-time commodity option markets
- Demonstration of option price modelling using ICE Connect
- Explanation (definition) and case studies
- Illustration of vol skew in real-time commodity option markets
- Explanation and illustration of time skew
- Significance of skew information - what is skew telling us?
Basic option strategy
- Long options versus short options
- Risk/reward dynamics
- Option pay-off graphs of sample real world option positions
Option strategy (hedging)
- The collar revisited - nuances and detail
- Hedging with options in the real world
- Range of approaches available to hedgers
Option strategy (speculation)
- Vertical spreads - call and put spreads
- Volatility spreads - straddles and strangles
- Horizontal spreads - calendars and diagonals
- Historical and real time examples of the above
- Rationale for employing specific speculative option spreads
- Selling options intelligently - controlling risk
Introducing the option sensitivities ('Greeks')
- Delta - definition, explanation, real world examples
- Interpretation and uses of delta
- Introduction to option market-making using Volcube software
- Delta hedging options positions - how and why
- Delta neutrality and the creation of synthetic positions
Option sensitivities continued
- Illustration of option sensitivities in real time using ICE Connect software
Option risk management
- Understanding the dynamic nature of option risk
- Using the primary Greeks to understand/identify option risk
- Combining 'what-if' reports with heuristic risk 'rules'
- Further resources including post-course support
- Explanation of glossary provided
- Q&A session
Intercontinental Exchange - Open Courses in Commodities and Financial Markets
Intercontinental Exchange's diverse markets span futures and options on interest rates, commodities, indexes and FX, as well as equities and equity options. These markets are relied upon by international market participants, along with our post-trade infrastructure. ICE is uniquely positioned...
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