Seminar: Timely Topics for Today’s Business World Mr. Bernstein Options January 15, 2015.

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Seminar: Timely Topics for Today’s Business World Mr. Bernstein Options January 15, 2015

Seminar: Timely Topics for Today’s Business World Mr. Bernstein Calls The right, but not the obligation, to purchase an asset Underlying Asset – what you can buy Strike Price – what price you will pay Time to Maturity – when the option expires 2

Seminar: Timely Topics for Today’s Business World Mr. Bernstein Payout pattern For Long Calls at maturity 3

Seminar: Timely Topics for Today’s Business World Mr. Bernstein Puts The right, but not the obligation, to sell an asset Underlying Asset – what you can buy Strike Price – what price you will pay Time to Maturity – when the option expires 4

Seminar: Timely Topics for Today’s Business World Mr. Bernstein Payout pattern For Long Puts at Maturity 5

Seminar: Timely Topics for Today’s Business World Mr. Bernstein Payout pattern For Short Calls at maturity 6

Seminar: Timely Topics for Today’s Business World Mr. Bernstein Payout pattern For Call Spread (Long Call + Short Call) at maturity 7

Seminar: Timely Topics for Today’s Business World Mr. Bernstein Payout pattern For Short Puts at Maturity 8

Seminar: Timely Topics for Today’s Business World Mr. Bernstein Options can be imbedded into other securities Example: Buy Bond; Use coupon $ to buy 3 calls and sell 1 put… And Viola! you get an attractive payout profile 9

Seminar: Timely Topics for Today’s Business World Mr. Bernstein Options Pricing is based on: Price of Underlying Asset Strike Price Time to Expiration Dividends / Interest Rates Volatility of the Underlying Asset 10

Seminar: Timely Topics for Today’s Business World Mr. Bernstein Options Pricing is based on: Price of Underlying Asset - KNOWN Strike Price - KNOWN Time to Expiration - KNOWN Dividends / Interest Rates - KNOWN Volatility of the Underlying Asset – IMPLIED ”Implied Vol” - a measure of richness ”Implied Vol” – can be compared to historical 11

Seminar: Timely Topics for Today’s Business World Mr. Bernstein Option Pricing & Analytics on Bloomberg (OMON) Bid, Offer, Implied Vol, Delta, Volume, Open Interest and other measures for various strikes and maturities 12

Seminar: Timely Topics for Today’s Business World Mr. Bernstein Options Pricing “Greeks”: Delta: Change in price of option relative to change in price of underlying asset Gamma: Change in the Delta of option relative to change in price of underlying asset Theta: Decay in Time Value Vega: Change in price of option relative to change in Implied Volatility 13

Seminar: Timely Topics for Today’s Business World Mr. Bernstein Options Pricing “Greeks”: Options portfolios must manage their exposure to Delta, Gamma, Theta and Vega Sophisticated managers can see Greeks on individual and overall portfolio basis 14

Seminar: Timely Topics for Today’s Business World Mr. Bernstein Time decay: Theta 15

Seminar: Timely Topics for Today’s Business World Mr. Bernstein Options Pricing “Greeks” (OMVE function) Input the known pricing factors such as asset, price, strike, maturity, and dividend/interest rate Model delivers Greeks 16