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Equity Derivatives 1: Trading and Managing Vanilla Options

London Financial Studies
Course summary
Length: 3 days
Price: 3,690 GBP excl. VAT
Language: English
Course type: Open / Scheduled
Next available date: Contact LFS for details - London
Rating: (5 Reviews)
Course home page: Link
Course Dates
Hong Kong
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Contact LFS for details  (English)
3,690 GBP
New York
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Course description

Equity Derivatives 1: Trading and Managing Vanilla Options

Trading & Managing Vanilla Options - 3-day Equity Derivatives training course in London

This Equity Derivatives course is an intensive three-day workshop presented by Alberto Cherubini, which provides delegates with detailed knowledge of trading issues and proven strategies for successfully managing risk of vanilla equity derivatives. 

The course begins by introducing delegates to modern vanilla equity derivatives and their markets, developing a comprehensive understanding of best practices and conventions both from a buy side and sell side perspective.

Delegates of this course also benefit from an exploration of the technical basis of derivatives pricing, hedging and risk management and get the opportunity to assess volatility and its impact on option pricing.  The course also focuses on the Black-Scholes framework with discussions centering on extensions. Finally,  the last session covers the volatility surface in detail, including trading and risk management of vanilla portfolios.

Suitability - Who should attend?

This Trading and Managing Vanilla Options course has been designed for banking and investment professionals, including:

  • Beginners in equity derivatives,
  • Buy-side equity professionals,
  • Sell side junior salespeople,
  • Brokers,
  • Middle and back office,
  • Legal and IT professionals.

Alberto Cherubini (Course leader)

Dr Alberto Cherubini was Head of Equity Derivatives Exotic Trading at Citigroup, London, and as such he is among the handful of people across the globe with the unique experience of running a wholesale structured book during the severe market crisis of 2008.

In his career he has traded most financial instruments, worked as a senior quant, a researcher in Nuclear Fusion (at JET Joint Undertaking), developed software in areas ranging from computational physics to industrial automation and neural networks, and received a PhD in Physics from Bologna University.

Dr Cherubini is currently the principal consultant at EQ Finance, which he started in 2009, and teaches equity derivatives on the Masters in Mathematical Finance at the University of Bologna.

Training Course Content

Thes Equity Derivatives 1: Trading and Managing Vanilla Options course will cover:

Day One

The forward

  • The importance of the forward
  • Forward contract vs. futures
  • The forward price
  • Static replication and arbitrage
  • Margins, funding, the box
  • Why delta not always 1
  • Effects of dividends, borrow-costs, taxes, funding

Options basics

  • Vanilla options payoffs
  • Time and intrinsic value
  • Put call parity arbitrage
  • Dependence on inputs
  • Theta
  • Model independent bounds on price
  • First mention of Black-Scholes formula

Overview of productsOption Features

  • Cash settled/Physical delivery
  • American / European
  • Multipliers
  • Notional vs. units
  • Percentage vs. absolute
  • Corporate actions

Reminder: what is an equity indexDelta 1 products

  • Futures, EFP, cash & carry
  • Forward contracts, synthetics, combos, jelly rolls
  • Equity swaps and the like, CFD's
  • Trading conventions and mechanics of execution

Zoology of listed and OTC vanilla options

  • Index vs. single stocks
  • Options on futures
  • Examples from various markets
  • Trading conventions, mechanics of execution

Using Options outright: Investment and Trading Strategies  
Directional trading

  • Conversions, synthetics
  • Call and put (Bull and Bear) spreads
  • Collars, Risk reversals

Non-Directional (range/time decay) trading strategies

  • Calendars
  • Straddles and strangles
  • Butterflies
  • Others

From prices of spreads to probabilities  
Yield enhancement and cost reduction strategies

  • Over and under-writing strategies
  • Stock replacement strategies

Examples and exercises  
Using Options outright: Risk Reduction Strategies
Use of vanilla options in portfolios: puts, calls, collars, futures  
Hedging a portfolio

  • Costs - Is it worth it?
  • Timing - Using axes
  • Rolling
  • Selecting the instruments
  • Texas hedging

Overview of markets and business models
Market knowledge

  • Conventions
  • Execution mechanics
  • IDB's
  • Timings, numbers

Market structure

  • Main players, business models
  • Behaviours and biases
  • Flows
  • Supply and demand
  • Impact on other markets and prices

Day two

The role of volatility in option pricing
Volatility as an ‘asset class’  
Implied volatility

  • Meaning
  • A mention of the surface

Realised volatility

  • Standard formulas
  • Advanced formulas
  • Properties and empirical observation
  • Mention of estimation methods

Vanilla Option: Black-Scholes pricing

  • Options trading: is it a zero sum game?
  • Dynamic delta hedging of options: a simple minded strategy
  • Volatility trading in a simplified sense
  • Intuitive derivation of Black-Scholes-Merton formulas (BSM)
  • Rules of thumb
  • Understanding BSM from different point of views
  • The BSM assumptions and how they break
  • American options: early exercise in practice

Excel Exercises  
Option Price Sensitivities
Delta, gamma, vega, theta, rho
How greeks change: time behaviour, spot and strike behaviour, higher order greeks (vanna, volga)
Examples, exercises  Dynamic delta hedging in practice

  • BSM delta hedging workshops
  • P&L analysis
  • The practical meaning of gamma
  • Theta decay: the cost of time
  • The theta/gamma balance
  • Rules of thumb
  • Volatility trading revisited
    • Vega vs. Gamma
    • Trading “realised”
    • Trading “implied”
  • Details of delta hedging strategies
  • Alternative choices for delta
  • A word of caution: jumps and their effect on the hedging argument

Workshop: Dynamic delta hedging: from the simple BS case to more complex and realistic scenarios

Day three

Implied Probability and Expectation Pricing

  • The link between vanilla option prices and probability
  • Application to proprietary trading
  • Delta from probability?
  • Expectation pricing: using the probability distribution to price derivatives
  • Pricing exotics without models
  • Calculating the static hedging portfolio for an exotic option
  • The missing link: conditional probability
  • Why exotic prices are non-unique

Workshop: from vanilla prices to probability and vice versaExtending the BS framework

  • How Black and Scholes fails
  • Simple extensions:
    • Leyland formula and other rules of thumbs
    • Effect of discrete hedging
  • Various kinds of non-normality
  • Gaps and jumps
  • Lack of liquidity and feedback loops
  • Implications of non-normality on hedging strategies


  • Hedging discreetly and with costs
  • Short gamma feedback loop, P&L effect

Implied Probability and Expectation Pricing

  • The link between vanilla option prices and probability
  • Application to proprietary trading
  • An introduction to exotics:
  • Expectation pricing: using the probability distribution to price derivatives
  • Why exotic prices are non-unique

Workshop: from vanilla prices to probabilityThe Volatility Surface Origins and meaning of the surfaceShape

  • Skew, smile and their causes
    • Link to credit risk: “put floor” from default
    • Other interpretations
  • Termstructure and roll-down

The dynamics of the surface

  • Stickiness and others
  • Realised dynamics of the surface
  • Theory, practice, and traders' biases
  • Effect of different dynamics on delta calculation

Examples of calculations
Risk to the surface

  • Reporting vega by bucket
  • Calculating skew and smile exposures
    • comparison to volga and vanna
    • tricks and pitfalls

Trading the volatility surface

  • 3 ways to trade skew
  • Term structure trades
  • Smile and curvature trades

Parameterisation, interpolation, or grid of numbers?

  • Different needs, different tools
  • The pitfalls of a non-parametric volsurface

Examples: Vanilla portfolios


Please enquire for the cost of this course.

In-house training - available worldwide

London Financial Studies can also deliver this course as in-house training for your company. In-company or bespoke training is often the most cost effective alternative to open courses, when looking to train a larger group.

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James Davies   |   19/09/2012
An excellent course - plenty of useful examples and an engaging teacher.
Delegate   |   19/09/2012
Excellent course by a brilliant tutor
Equity Brokerage, global investment bank   |   11/09/2012
Alberto is a great tutor and demonstrated a lot of practical knowledge of the material. It is very helpful that he has both worked on a trading floor and has the talent to explain complex material in a practical, easy to understand style. […]
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Equity Derivatives 1: Trading and Managing Vanilla Options
Course rating
Based on 5 reviews
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