Options and volatility

Payoffs, put–call parity, the Greeks, implied volatility and skew.

1. O1Option payoffsSay what calls and puts are, work out what they pay at expiry, and find the price where a trade breaks even.8 min
2. O2What drives an option’s priceSay which way each input moves a call and a put, and estimate an at-the-money option’s price in your head.9 min
3. O3Put–call parity and syntheticsUse the link between call and put prices to price one from the other, and build one position out of others.8 min
4. O4Delta and hedgingWork out how much an option moves when the share moves, and how many shares make a hedge.8 min
5. O5Gamma, theta and the hedger’s P&LWork out what a hedged option position makes or loses in a day, and how big a move it needs to break even.9 min
6. O6Volatility: implied, realised and the risk premiumTurn a volatility figure into a daily move, work out a vega P&L, and say whether options look cheap or dear.9 min
7. O7Skew and term structureRead how implied volatility differs by strike and by expiry, and say what that shows the market fears.8 min
8. O8StrategiesMatch an option strategy to a view, and work out where it breaks even and what it can lose.9 min
9. O9Volatility products and flowsExplain how traders bet on volatility directly, and who wins or loses when it jumps.9 min
10. O10Options across asset classesName a currency option, value a swaption or an interest rate cap at expiry, and explain why barrier options are cheaper.9 min