Derivatives - Deep Dives — Markets & Trading

About the Course

The programmes “Options & Options Trading” are specifically designed to expand delegates’ knowledge of, and skills with respect to energy options, their features, how to use these instruments, why and when to use them, and how they can be of help when risk exposures are to be managed. Next, in these programmes the pricing of options is incorporated, and therefore the aim will also be at (potential) price changes. And last, but not least, the programmes cover the opportunities and risks of these instruments and the incorporation of these in energy portfolios.


In the first level of the ‘Options & Options Trading’ programmes focus is on the fundamentals of options and option contracts. The focus in this programme is at what kind of outright options exist and what their features are. Contract specifications are taken into consideration and settlement procedures are explained.

This programme will equip students with a working knowledge of the trading of options. It also provides insight in volatility as such but also as ingredient for options premiums.

Course Contents

Fundamentals of options

  • What are options? What types are there? What is a call or put?
  • A right versus an obligation

Contract specifications

  • About the structure of option contracts
  • Concerning strike price, style, maturity, expiration & settlement

Options trading & position management

  • About long & short and opening & closing option positions
  • Concerning the holder and the writer of an option

P&L structures, intrinsic value & pay-off

  • About the value and investment at expiration
  • Concerning the P/L of contracts at maturity
  • How to speculate with options?

Option premium – Factors of influence

  • About option pricing; intrinsic value plus time value
  • Concerning market-specific factors & contract specific elements

Moneyness – In- at- or out-of-the-money

  • Terminology
  • About at-the-money, in-the-money and out-of-the-money

Hedging with options – Strategies

  • Application of options on physical positions and exposures
  • Hedging strategies with call optiosn and/or put options
  • Hedging (physical) long positions and/or short positions
  • Hedging at no cost

Synthetics – Arbitrage

  • About the put-call-parity; concerning time value
  • Re sythtically creating a call from a put, or vice versa
  • Risk-free opportunities – Arbitrage strategies

Exam & Certification


In the second level of the ‘Options & Options Trading’ programme focus is on the pricing and valuation of option contracts. The price dynamics of these instruments are brought forward in an intensive way. Option valuation methods are discussed. Next, option pricing elements such as skew and kurtosis are considered and students learn what kind of implications these have for pricing of these financial instruments. Students also learn how options can be used with the purpose of hedging exposures.

Combinations of options are also considered in this programme. These strategies are set up for either hedging purposes, in order to profit from arbitrage opportunities, or to speculate. Students learn how all of this works, and what the implications of such are.

Course Contents

Option pricing & valuation – Implied volatility & skew

  • Concerning implied volatility; what is it & what does it indicate?
  • About positive & negative skewness and the impact on pricing
  • Covering the volatility curve & volatility smile

Black & Scholes model – European style options

  • Concerning the most well known option valuation model
  • Covering equity options & how it may apply to commodities
  • About log-normal distribution curves

Binomial trees – American style options

  • Concerning a method to price early exercise options
  • About probabilities to certain outcomes & significance of it
  • Explaining the concept of option valuation

Monte Carlo Simulations – Asian style options

  • About the valuation of exotic options
  • Concerning simulations based on assumptions
  • Generation of a seemingly unlimited number of possibilities

Straddle model – Rules of thumb

  • About a simplified way to price option
  • Concerning option pricing by heart; quick & dirty
  • Covering a method to roughly indicate the option premium

Option strategies – Combinations of options

  • About straddle, strangle, butterfly & condor
  • Concerning premium (decay), break-even points & optimum
  • Including profit/loss graphs or pay-off structure

Option strategies – Hedging methodologies (Delta-hedging)

  • About delta-hedging; what is it and how is it applied?
  • Concerning hedging of an option; about timing & volume
  • Applied to option positions of companies, including examples

Exam & Certification


In the third level of the ‘Options & Options Trading’ programme focus is on the application of options in a sophisticated way. Students learn how embedded options are incorporated in energy portfolios. The programmes helps student to understand how these embedded options can be allocated and managed. Swing options and flex options are often incorporated in energy supply contracts. This programme covers the consequences of such and offers insight in strategies to manage the risks involved and to optimize the results.

Scenarios and sensitivity analysis is also taken into consideration in this programme. That is why the Greeks variables of options and option prices are explained in a thorough way.

Course Contents

Advanced hedging strategies – For consumers

  • Concerning European style & Asian style options plus indexation
  • About vertical call spreads & a 3-way collar
  • Covering the application of cash settled option contracts

Advanced hedging strategies – For producers

  • About European style & Asian style options plus indexation
  • Concerning vertical put spreads & a 3-way collar
  • Covering the application of cash settled option contracts

Options risk management – 1st order Greek variables

  • About Delta, Vega, Theta & Rho
  • Concerning sensitivity analysis with options, including examples

Options risk management – 2nd order Greek variables

  • Covering Gamma, Charm, Vanna and Vomma
  • Concerning the Greeks in an advanced way, including examples
  • About cross-dependency & inter-relationships between Greeks

Embedded options – Energy supply contracts

  • About click contracts with price fixation moment(s)
  • Concerning validity period and validity premium
  • Covering risk premiums in the pricing of energy supply contracts

Take or Pay options – Business decisions

  • About real options, in the sense of business decisions
  • Concerning securing cash flows by the supplier

Flex options – Volume flexibility

  • About flexibility in the total off-take in an energy supply contract
  • Covering how to handle the related uncertainty by the supplier
  • Including risk management, pricing and Delta-hedging

Swing options – Fluctuating off-take

  • About contracts with flexibility in when to off-take how much
  • Concerning the allocation of volume over various time periods

Exam & Certification


In the fourth level of the Expert ‘Options & Options Trading’ programme focus is on energy portfolio management. Physical assets such as power plants, gas storages and transport capacity are modelled according to the real option approach. The value of these assets is looked at by means of this theory.

The programme goes beyond plain vanilla & embedded options and considers exotic options and the flexibility they provide. Exotic varieties will be applied to energy portfolios; physical assets will be looked at from a financial perspective. As a consequence students have to apply scenarios to specific portfolios. The complexity is unraffled and sophistication of students is realized.

Course Contents

Exotic options – Asian, binary & barrier options

  • About path-dependent options, p.e. Asian style & barrier options
  • Covering binary options, forward start options & cliquet options
  • Concerning pricing and Greeks of exotics

Real options – Applied to physical assets

  • Covering option spreads & spread options + the way they work
  • Options to expand/contract, initiate/abondon, change in/output
  • About the modeling of physical assets as options
  • Concerning real options and the real option approach
  • Including cross-commodity options

Modeling storage capacity – Time spread options

  • Modeling oil/gas storage facilities
  • Hedging storage capacity by trading time spreads
  • Concerning seasonality and price volatility

Modeling transport capacity – Location spread options

  • Modeling pipeline, shipping and transmission capacity
  • Hedging transport capacity with location spreads
  • Cross-border trading & cross-region trading

Modeling production capacity – Margin options

  • Modeling oil refineries and power plants
  • About crack spread options & spark/dark spread options
  • Hedging production capacity with margin spreads

Pricing & hedging spread options – Complex models

  • Covering the complexity of spread option valuation models
  • About the input variables of spread option valuation models
  • Concerning the output of such models
  • Covering the variety of Greeks and multiple Deltas to hedge

Exam & Certification

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