Academy 5 Basic Option Trading Get connected to B&R 1.

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Academy 5 Basic Option Trading Get connected to B&R 1

 How big is the worldwide derivative market?  A. $80 billion  B. $800 billion  C. $8 trillion  D. $80 trillion  NL GDP: €600 billion (600,000,000,000  US GDP: $14 trillion (14,000,000,000,000) 2

 Banks and institutional investors  Size: $ 600 trillion (600,000,000,000,000,000)  ( miljard in dutch) 3

“Options involve risks and are not suitable for everyone. Option trading can be speculative in nature and carry substantial risk of loss. Only invest with risk capital” 4

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 Right to buy or sell  Specific expiration date  Specific price 6

 Call: Right to buy  Put: Right to sell  Traded in contracts Regulair sized 100 7

 ING Groep Call dec ,40  Underlying value  Expiration date  Strike price 8

 StocksIndicesCommodities 9

 The end date of your option.  European style options  American style options  In Europe we trade American style options 10

 Selling an option you don’t own  You do not have a right to buy or sell, but the obligation  Need margin  If you own stocks you do not need a margin for a call option (Covered short selling) 11

1) You short a call option. Stock goes up. Profit or loss? 2)You buy a put option. Stock goes down Profit or loss? 3)You short a put. Stock goes up Profit or loss? 12

 Options:  Right to buy or sell  Stocks, indices, currencies  Future:  Obligation to buy or sell  Stocks, commodities  Always physical settlement 13

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16 Underlying value Time valueOther  Current stock price-strike price. (Intrinsical value)  The longer away the higer the price  Volatility, risk free rate, dividend yield.

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 Premium  Time Value  Price of option – intrinsical value 18

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 Other costs:  Transaction costs (2,95 or 1,95 per contract)  Bid-Ask spread 20

 Speculation ◦ Leverage ◦ Limited risk ◦ Limited cash required ◦ Unique payoffs  Hedging  Stock options ◦ Incentive employees 21

Anyone in the crowd traded with options? If yes, Tell us your wonderfull profit! Or loss.. 22

So, nice to know.. but how does it work?? 23

 LongShort  Strike price 24

 LongShort 25

 Buy 100 stocks  Write 100 call options  (1 contract) 26

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 Stockprice 30  Buy 1 call 32  Write 1 call 34 28

 Buy 1 call 26  Buy 1 put 26 29

 Strangle  Long strangle  Butterfly spread  Iron Butterfly spread  Iron Condor  Protective collar  Etc. 30

About 90% of private traders lose money on options. 31

 Option  Call  Put  Contract  Underlying values 32

 The model  Strategies  Greeks  And more! 33

 22 november 

 21 november  €5 for dinner, free poker 35

We hope you have enjoyed 36

 Current price philips € 15  We sell 1 put philips Dec ,00 €1,50  Philips drops to € 10  Do we make a profit? 37

 Current price Aegon € 3,50  We Buy 1 call december-2012 €3,00 €0,90  We Buy 1 put december-2012 €4,00 €0,90  Aegon increases to €5,- in december  Do we make a profit? 38

 Current price Arcelor Mittal: €15,50  We buy 1 call Arcelor Mittal Jun 15  We sell 1 call Arcelor Mittal Jun 17  What is your investment?  Arcelor increases to €19, what is your profit? 39