Advanced Option Pricing

Lesson /13
Advanced Pricing Sample Lesson
  • You will understand what "delta hedging" is and how market makers use it to control their risk of holding option inventory.
  • You will understand some of the other issues that come into play when a market maker is attempting to hedge his or her option inventory exposure.
  • You will understand why I said that "Gamma = Fear" when we talk about Gamma Risk.
Delta Hedging

Gamma Risk

Hedge Ratio

If you spend any time in the option world, you will hear about fancy binomial and trinomial pricing models and about the “Greeks“. While becoming expert in these topics is important for inventoriers, it’s not nearly so much so for positional investors. This course tells you what you need to know, especially if you are an institutional investor looking to use options to hedge stock positions.

The course…

  • teaches you the about alternative option pricing models and how they are different and (critically) similar to the Black-Scholes Model,
  • offers an overview of the Greeks,
  • delves deeper into the most useful Greek – Delta,
  • discusses delta hedging and the role it plays in institutional option transactions,
  • looks at an actual case study of the institutional use of options (Bill Ackman’s investment in Target), and
  • explains everything you need to know about the “minor” Greeks (Rho, Vega, and Theta).

The snippet from the video you see above is from the lesson “Delta Hedging and Gamma Risk” which looks at institutional option transactions from the market maker’s point of view.

This mini-course is a necessity for a professional using options in an institutional context and will significantly deepen an individual investor’s understanding of option pricing.

Supplemental Resources