Overseeing Risk Related to Equity
Equity Swaps Equity swaps provide an attractive solution for portfolio managers seeking to adjust their equity exposure. These swaps offer a quick, cost-effective, and efficient method to achieve the desired changes. Portfolio exposure to equities is commonly assessed using portfolio…
Controlling Currency Exposure
Currency Swaps Currency swaps allow investors to hedge against or profit from fluctuations in foreign currency prices. These swaps involve the exchange of different currencies associated with specific interest rates. Additionally, the notional principal amounts in a currency swap can…
Controlled Interest Rate Risks For Futures and Forwards
Investment managers and investors utilize swaps, forwards, futures, and volatility derivatives in various ways, including hedging, directional bets, creating desired payoffs, asset allocation, portfolio rebalancing, and gauging current market expectations. The following table shows that investors and portfolio managers commonly…
Equity Risk Exposures
Options offer investors a wide range of flexibility to manage their portfolio’s risk and return characteristics. They can be utilized to achieve specific objectives within an investment portfolio. Here are some typical applications of options strategies: Long Calls in a…
Options Strategies for Given Investment Objectives
Setting Market Expectations – Direction Vs. Greeks Determining market expectations and selecting the appropriate options strategy is crucial for success. Different strategies focus on different factors. Some strategies rely on the directional movement of the underlying stock, such as bear…
Volatility Skew and Smile
To understand volatility skews and smiles, candidates must first grasp the concept of implied volatility and its limitations. Implied Volatility Implied volatility can be described as the outlook of a derivative contract’s expected standard deviation of returns. It is the…
Uses of Calendar Spreads
Calendar spreads involve buying and selling options simultaneously. They are used to express a view on volatility or price direction within a specific timeframe. Long Calendar Spread An investor is bullish on CBA stock. They want to use call options…
Spreads and Combinations
Until this point in the curriculum, the strategies we discussed involved combinations of options and stock positions. However, the following strategies can be created using just two option positions. While spreads and straddles are often standalone strategies without the…
Using Options to Hedge a Short Position
Options strategies are, by nature, highly flexible and customizable. They can be combined based on market expectations, attitudes, desires, and existing portfolio setups. While the strategies and combinations discussed have common goals, objectives, and setups, it’s important to remember…
Delta of a Covered Call and Protective Put Position
Investors frequently seek to modify their investment positions for various reasons, such as securing profits, generating income, or taking advantage of potential stock price declines. As time progresses, investment strategies tend to become more dynamic. Monitoring overall risk exposure can…
