خرید و دانلود نسخه کامل کتاب Trading Volatility, correlation, term structure, and skew 2014!! – Original PDF

1.1: OPTION BASICS This section introduces options and the history of options trading. The definition of call and put options, and how they can be used to gain long or short equity exposure, is explained. Key definitions and terminology are given, including strike, expiry, intrinsic value, time value, ATM, OTM and ITM. HISTORY OF VOLATILITY TRADING While standardised exchange traded options only started trading in 1973 when the CBOE (Chicago Board Options Exchange) opened, options were first traded in London from 1690. Pricing was made easier by the Black-Scholes-Merton formula (usually shortened to Black- Scholes), which was invented in 1970 by Fischer Black, Myron Scholes and Robert Merton. Option trading exploded in the 1990s The derivatives explosion in the 1990s was partly due to the increasing popularity of hedge funds, which led to volatility becoming an asset class in its own right. New volatility products such as volatility swaps and variance swaps were created, and a decade later futures on volatility indices gave investors listed instruments to trade volatility. In this chapter we shall concentrate on option trading. CALL OPTIONS GIVE RIGHT TO BUY, PUTS RIGHT TO SELL A European call is a contract that gives the investor the right (but not the obligation) to buy a security at a certain strike price on a certain expiry date (American options can be exercised before expiry). A put is identical except it is the right to sell the security. Call option gives long exposure, put options give short exposure A call option profits when markets rise (as exercising the call means the investor can buy the underlying security cheaper than it is trading, and then sell it at a profit). A put option profits when markets fall (as you can buy the underlying security for less, exercise the put and sell the security for a profit). Options therefore allow investors to put on long (profit when prices rise) or short (profit when prices fall) strategies.