ICM339: Advanced Options Trading Qualification

Module code: ICM339

Module provider: ICMA Centre; Henley Business School

Credits: 20

Level: 7

When you'll be taught: Summer (vacation) semester

Module convenor: Dr Mike Smith, email: m.j.smith@icmacentre.ac.uk

Pre-requisite module(s): This module is unique to the Masters in Finance Programme (Open)

Co-requisite module(s): IN THE SAME YEAR AS TAKING THIS MODULE YOU MUST TAKE ICM211 (Compulsory)

Pre-requisite or Co-requisite module(s):

Module(s) excluded:

Placement information: NA

Academic year: 2024/5

Available to visiting students: No

Talis reading list: No

Last updated: 19 November 2024

Overview

Module aims and purpose

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.

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.

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.

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.

Module learning outcomes

By the end of the module, it is expected that students should be able to:

• Define implied volatility, fully evaluate the practical uses of this information and explain all the primary and secondary option sensitivities, including Gamma and how it is traded.
• Critically evaluate and develop all the main vertical option strategies used within the financial markets and identify and manage the risk of option volatility spreads.
• Utilise and apply the principles and practice of option market making and dynamically hedge option positions to main delta neutrality
• Develop an option model to create option prices and sensitivities in line with a range of option series and interpret the fundamental principles of Black Scholes price modelling

Module 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.

Structure

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 highly 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 opportunities 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 ()  a global Options market maker will be involved during the delivery of the programme.

Study hours

At least 65 hours of scheduled teaching and learning activities will be delivered in person, with the remaining hours for scheduled and self-scheduled teaching and learning activities delivered either in person or online. You will receive further details about how these hours will be delivered before the start of the module.

Please note the independent study hours above are notional numbers of hours; each student will approach studying in different ways. We would advise you to reflect on your learning and the number of hours you are allocating to these tasks.

Semester 1 The hours in this column may include hours during the Christmas holiday period.

Semester 2 The hours in this column may include hours during the Easter holiday period.

Summer The hours in this column will take place during the summer holidays and may be at the start and/or end of the module.

Assessment

Requirements for a pass

50% weighted average mark

Summative assessment

Penalties for late submission of summative assessment

The Support Centres will apply the following penalties for work submitted late:

Assessments with numerical marks

• 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 three working days;
• the mark awarded due to the imposition of the penalty shall not fall below the threshold pass mark, namely 40% in the case of modules at Levels 4-6 (i.e. undergraduate modules for Parts 1-3) and 50% in the case of Level 7 modules offered as part of an Integrated Masters or taught postgraduate degree programme;
• where the piece of work is awarded a mark below the threshold pass mark prior to any penalty being imposed, and is submitted up to three working days after the original deadline (or any formally agreed extension to the deadline), no penalty shall be imposed;
• where the piece of work is submitted more than three working days after the original deadline (or any formally agreed extension to the deadline): a mark of zero will be recorded.

Assessments marked Pass/Fail

• where the piece of work is submitted within three working days of the deadline (or any formally agreed extension of the deadline): no penalty will be applied;
• where the piece of work is submitted more than three working days after the original deadline (or any formally agreed extension of the deadline): a grade of Fail will be awarded.

The University policy statement on penalties for late submission can be found at: /cqsd/-/media/project/functions/cqsd/documents/qap/penaltiesforlatesubmission.pdf

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.

Formative assessment

Formative assessment is any task or activity which creates feedback (or feedforward) for you about your learning, but which does not contribute towards your overall module mark.

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.

Reassessment

Additional costs