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ICM339-Advanced Options Trading Qualification
Module Provider: ICMA Centre
Number of credits: 20 [10 ECTS credits]
Level:7
Terms in which taught: Summer term module
Pre-requisites:
Non-modular pre-requisites:
Co-requisites: ICM211 Derivative Securities: Pricing, Hedging and Trading
Modules excluded:
Current from: 2022/3
Module Convenor: Dr Mike Smith
Email: m.j.smith@icmacentre.ac.uk
Type of module:
Summary module description:
The Advanced Options Trading module, exclusive to the ICMA Centre’s Masters in Finance programme, is an employer-led, industry accredited programme centred on professional development, practical application and transferrable skills, making individuals work-ready for job role profiles such as: Options Trader, Options Broker, Market Maker, Options Analyst or Risk Manager.
Throughout this module, students will develop their knowledge and understanding of trading, management and supervision of options within financial markets.
Delivered in an investment bank internship style by leading market practitioners and in collaboration with one of the world’s largest financial exchanges, The Intercontinental Exchange (ICE), students will engage with employers and use industry leading software such as Volcube, ICE Connect and ICE Options Analytics to support their learning, development and application.
Students who successfully complete and pass the course will qualify for a sought-after interview with the OSTC Group for different roles, including Junior Trader.
Aims:
Throughout this module, students will develop their knowledge and understanding of the trading, management and supervision of options within financial markets. They will also develop the ability to practically apply the knowledge, understanding and required skills to trade options actively within the financial markets. Students will:
- Develop a high-level understanding of option theory and application at practitioner level.
- Be able to interpret both volatility and volatility skew.
- Be able to use and interpret the key primary and secondary option sensitivities including gamma and gamma trading.
- Understand the key features, risk/reward and trading rationales of vertical, horizontal and volatility option trading strategies and refinements such as ratio spreads, butterflies and condors (both “vanilla” and “iron”).
- Understand the key principles and practice of option market making.
- Understand the principles of option risk management on both a single-position and portfolio basis.
- Know how and where to source option-related information and metrics – and how to interpret and use such information.
The module is delivered by market practitioners in the style of an internship to support the behavioural development of enhanced employability skills and ultimately make students work-ready and professionally competent for future careers.
Assessable learning outcomes:
By the end of the module, it is expected that the student will be able to:
- Interpret implied volatility and fully evaluate the practical uses of this information.
- Identify and explain all the primary and secondary option sensitivities, including Gamma and how it is traded.
- Explain, manipulate and convert all the main vertical option strategies used within the financial markets.
- Trade and manage the risk of option volatility spreads.
- Apply the principles and practice of option market making.
- Dynamically hedge option positions to main delta neutrality
- Devise an option model to create option prices and sensitivities in line with a range of option series.
- Interpret the fundamental principles of Black Scholes price modelling
Additional outcomes:
Those students who successfully complete and pass the module, in addition to successfully passing ICM211 Derivative Securities: Pricing, Hedging and Trading (under Ofqual recognised prior learning), will achieve an additional Ofqual regulated vocational qualification, ‘Level 5 Advanced Diploma in Options Trading.. This qualification sits on both the Regulated Qualification Framework and European Qualification Framework. In addition this qualification is externally recognised by the Chartered Institute for Securities and Investments (CISI) at Associate membership level. To gain the additional designated letters ACSI, the student should independently register with the CISI and complete an online integrity test.
Students who do not pass ICM211 but complete the ‘Advanced Options Trading’ module will receive a unit of achievement certificate, ‘Advanced Options Theory and Practice.’
Both the Advanced Diploma and Unit of Achievement will be delivered under a dual collaboration between ZISHI Cornerstone, part of the OSTC Group (), and Intercontinental Exchange Education (), part of the ICE Group, gaining a recognition of achievement from both organisations.
In addition to the attainment of either the Diploma or Unit of Achievement, students qualify for a (trading or related) job interview with OSTC Markets, a leading independent trading industry practitioner and recently awarded ‘Proprietary Trading’ Firm of the Year” at the industry-recognised FOW International Awards 2020.
Outline content:
- Fundamental principles of Black Scholes price modelling, weaknesses in Black Scholes, probability theory and the way in which it relates to option pricing, anticipated underlying price ranges from implied volatility numbers, convert expected price ranges from annual ranges to shorter time frames, implications and practical uses of information derived from implied volatility numbers
- Identify the secondary option sensitivities, explain gamma and why it exists, explain trading long gamma, explain short gamma and its consequences, explain the trade-off between gamma and theta, explain the relationship between gamma and vega, explain the ways in which vertical option spreads may be refined, identify the components pay-off and uses of long ratio spreads, identify the components pay-off and uses of short ratio spreads
- Explain how ratio spreads may be converted into butterflies, identify the pay-off profile and uses of butterflies, identify the components pay-off profile and uses of long ladder spreads, identify the components pay-off profile and uses of short ladder spreads, explain how ladder spreads may be converted into condors, identify the pay-off profile of condors.
- Devise an option model to create option prices and sensitivities in line with a range of option series, apply a model to fit skew curves to the same range of option series, adapt both prices and sensitivities to a range of market events and circumstances, explain the ways in which volatilities and skew fluctuate in real world options markets.
- Dynamically hedge option positions to main delta neutrality, dynamically manage the risks associated with a range of options positions, model and interpret the option sensitivities for a range of option positions, carry out ‘what if’ scenarios for a range of option positions.
- Devise a model and interpret the option sensitivities for a range of option portfolios, carry out ‘what if’ scenarios for a range of option portfolios, devise risk reports for a range of option portfolios, identify appropriate trades to reduce/eliminate the risks associated with a range of option portfolios, explain the key heuristic rules relating to option risk management.
Global context:
Working with a global trading practitioner and leading global exchange the module develops work-ready individuals for job role profiles such as; Options Trader, Options Broker, Market Maker, Options Analyst, Risk Manager or Treasury in large corporate institutions.
Brief description of teaching and learning methods:
Within the module, students are required to complete set research tasks based on current economic activity and complete set activity tasks, showing how knowledge has been implemented into real situations for option trading decisions. Alongside this, a portfolio of evidence is a mandatory requirement to track the student’s progress and determine the student’s understanding and implementation of the knowledge required to attain professional competence.
Led by hig hly experienced practitioners from the OSTC Group, the teaching sessions will be full-time (9am-12am & 1pm-4pm) and delivered face-to-face over a 10 day period The timings and delivery help support the internship style of delivery, building relevant industry knowledge, skills and behaviour to develop professional competency and transition into employment.
To support learning and development students will engage with industry leading software to support their learning and application. Current software used will be Volcube, ICE Connect and ICE Options Analytics.
Volcube bridges the gap between classroom theory and practical application, it is both a simulator and library for options theory. Students assume the position of a market maker and will gain an understanding of option pricing and market flow. Covering the topics of; market making & pricing options, options trading strategies, Black-Scholes pricing model, the Greeks & general risk management, pay-off profiles, portfolio construction and hedging using futures and options strategies.
ICE Connect brings together a range of trading tools with cross-asset real-time data, news and analytics for global markets.
ICE Options Analytics – Gives a competitive Edge with Options Valuation, Analytics and Risk Management. Quickly price strips and spreads, identify trading oppor tunities and manage risk in real time with advanced options valuation, analytics and risk management that supports the latest and most complex options trading strategies.
In addition ZISHI will reach out and involve Exchanges and other leading market participants in specialised sessions to help develop students ‘real-world’ experience, understanding and network building. To this end, Mako Trading (www.mako.com) a global Options market maker will be involved during the delivery of the programme.
| Autumn | Spring | Summer | |
| Practicals classes and workshops | 30 | ||
| Supervised time in studio/workshop | 30 | ||
| Work-based learning | 5 | ||
| Guided independent study: | |||
| Wider reading (independent) | 25 | ||
| Wider reading (directed) | 25 | ||
| Advance preparation for classes | 50 | ||
| Preparation for tutorials | 10 | ||
| Reflection | 25 | ||
| Total hours by term | 0 | 0 | 200 |
| Total hours for module | 200 |
| Method | Percentage |
| Practical skills assessment | 50 |
| Class test administered by School | 50 |
Summative assessment- Examinations:
Summative assessment- Coursework and in-class tests:
Assessment is non-exam based and will fall into three two assessment categories where each category accounts for 50% of the overall mark:
50% of the overall mark made up of:
Ten 30 minute in-class multiple choice mini tests of 5 questions each, together they account for 25% of the module mark.
Eight short assignments of 500 words each set as homework, together they account for 25% of the module mark
50% of the module mark made up of:
Five in class applied options trading simulation assessments, based on set tasks using options trading software. Each simulation test will account for 10% of the module mark, together they account for 50% of the module mark.
Formative assessment methods:
Students will be able to practice as many times as they may need for the applied options trading simulation tasks and receive feedback and guidance prior to starting the official assessment task.
Penalties for late submission:
The below information applies to students on taught programmes except those on Postgraduate Flexible programmes. Penalties for late submission, and the associated procedures, which apply to Postgraduate Flexible programmes are specified in the policy £Penalties for late submission for Postgraduate Flexible programmes£, which can be found here: /cqsd/-/media/project/functions/cqsd/documents/cqsd-old-site-documents/penaltiesforlatesubmissionpgflexible.pdf
The Support Centres will apply the following penalties for work submitted late:
- where the piece of work is submitted after the original deadline (or any formally agreed extension to the deadline): 10% of the total marks available for that piece of work will be deducted from the mark for each working day (or part thereof) following the deadline up to a total of five working days;
- where the piece of work is submitted more than five working days after the original deadline (or any formally agreed extension to the deadline): a mark of zero will be recorded.
You are strongly advised to ensure that coursework is submitted by the relevant deadline. You should note that it is advisable to submit work in an unfinished state rather than to fail to submit any work.
Assessment requirements for a pass:
At least 50% in Class test and Trading Test
Reassessment arrangements:
Students who fail the module (weighted average mark below 50) will take a re-sit in the form of a 2-hour test (combination of MCQ and open-ended questions) to satisfy the requirements of the MSc module.
In addition, in order to satisfy the requirements of the Level 5 Advanced Diploma in Options Trading, students will need to re-take all the assessment pieces they failed. The re-take of failed assessment pieces to obtain the Level 5 Advanced Diploma in Options Trading is separate from the re-assessment listed above, and is not a requirement to pass the module.
Additional Costs (specified where applicable):
Last updated: 17 January 2023
THE INFORMATION CONTAINED IN THIS MODULE DESCRIPTION DOES NOT FORM ANY PART OF A STUDENT'S CONTRACT.