Introduction to Options, Pricing and Use Cases

Introduction to Options, Pricing and Use Cases

Peter provides an overview of the basic methodology behind pricing options.
Overview

Options are financial instruments that give holders an option, but not an obligation, to buy or sell an underlying asset at an agreed price within the lifetime of the contract. The seller of an option is obliged to buy or sell if and when the buyer chooses to exercise it. Options are available on a wide range of assets, including stocks, bonds, commodities, currencies, futures, market indices, and funds.

Key learning objectives:

  • What are options?

  • What advantages do options offer in trading and hedging?

  • Define the basics of options pricing

  • What is delta trading?

  • What are historic volatility and implied volatility?

  • How is volatility used to derive an option price?

  • Describe the basics of the Black-Scholes Model

  • What are the limitations of pricing models?

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Summary
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