Options - Mechanism and Underlying Theory

Name: Options - Mechanism and Underlying Theory
Rating: 4.9 (8 reviews)

Options Trading Strategies and Pricing

Created byEarth Team

Last updated 12/2022

English

English [Auto],

What you'll learn

Learn Option Pricing Theory, Binomial Model and Black Scholes Pricing Model
Learn the Option Greek Dynamics and Risk Profile.
Learn to create basic option spreads conducive to market environment.
Trade Options basis the greeks mechanism.

Course content

2 sections • 13 lectures • 3h 18m total length

Options Defined14:34
Define options, explore their risk profiles, spreads, and hedging strategies, and learn option pricing through Wiener process, Ito's lemma, Black-Scholes-Merton and binomial models, plus Greeks.
Option Greeks
Moneyness of an Option11:22
Explain moneyness by intrinsic and extrinsic value, showing how spot and strike prices determine the time value and money status (in, at, out) for calls and puts.
Option Moneyness
Options Risk Profile13:23
Learn how different risk factors like Underlying asset price, volatility and time to expiry influence the Option Premium and how to place the trades which are conducive to market environment.
Option Dynamics
Put-Call Parity17:36
Explore put-call parity, showing how a call plus bond equals a put plus stock for the same maturity and strike, revealing no-arbitrage and forward pricing.
Option Spreads16:08
Explore how delta, theta, and vega influence spreads, pairing speculative and hedging legs in bull and bear call and put spreads, using near money and out-of-the-money strikes under changing volatility.
Spreads
Straddles6:56
Use a straddle by buying a call and a put at the same strike to profit from a big move in either direction, with negative theta and positive vega.

Weiner Process20:54
Defines the Wiener process as a Markov process with zero-mean, sqrt(delta t) increments and variance delta t, and extends to a generalized Wiener process with constants a and B.
Weiner Process
Process for Stock Price15:43
Explore how Wiener and generalized Wiener processes define drift and variance rates, and how stock price returns are modeled as a generalized Wiener process with mu and sigma constants.
Ito's Lemma17:02
Apply Ito's lemma to a generalized Wiener process to derive the Black-Scholes partial differential equation, linking derivative pricing to drift and variance in stock dynamics.
Lognormal Property of Stock Returns11:08
Derive the lognormal property of stock returns, showing that stock prices follow dS = S(mu dt + sigma dZ) and ln S is normally distributed, enabling Black-Scholes PDE groundwork.
Black-Scholes-Merton Model18:00
Derive the Black-Scholes-Merton model from lognormal stock dynamics using Ito's lemma, form a delta-hedged portfolio, and obtain the Black-Scholes PDE with call and put solutions via nd1 and nd2.
One-Step Binomial Model14:32
Apply the one-step binomial model to price a derivative using no-arbitrage and a delta neutral hedge, with up and down factors U and D and a risk-free return.
Two-Step Binomial Model21:18
Learn the two-step binomial model for derivative pricing, using no-arbitrage and risk-neutral valuation to determine u, d, and option prices via backward tracing with delta hedging.

Requirements

Basic high school calculus

Description

Course outlines the basics of options pricing mechanism. It outlays the framework for building the sophisticated option strategies by laying the foundation of vanilla spreads strategies. It explains the behaviour of various option greeks influencing the premium of an option. Course also elaborates on impact of various risk factors like underlying volatility, time to expiry and money-ness of an option that must be considered while deploying these spreads which makes the overall strategy more conducive to the prevailing market conditions. This course further talks about the underlying mathematical concepts behind famous Black-Scholes-Merton formalism and Binomial Model used for pricing these range of derivatives. Course takes a mix of qualitative and quantitative approach such that rigorous and important mathematical concepts doesn't get excluded and at the same time subject remains easy to grasp.

Course consists of 11 lectures spread across two sections:-

1. Options Defined

2. Money-ness of an Option

3. Options Risk Profile

4. Option Spreads

5. Straddles

6. Weiner Process

7. Process for Stock Price

8. Ito's Lemma

9. Lognormal Property of Stock Returns

10. Black-Scholes-Merton Model

11. Binomial Model

Earth Team: This course is designed by the Quants and Educational experts who have more than decade of experience in providing training to wide spectrum of professionals. Team has worked with various hedge funds, investment banks and elite academic financial institutions to bring a quality financial education to all the potential aspirers.

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Who this course is for:

Beginners who want to learn the math behind the options as well trade various spread combinations.

Options - Mechanism and Underlying Theory

What you'll learn

Explore related topics

Course content

Options6 lectures • 1hr 20min

Option Pricing7 lectures • 1hr 59min

Requirements

Description

Who this course is for: