EQUITY INDEX FUTURES AND OPTIONS
Purpose: Applications for trading and hedging using equity index futures and options including S&P 500 and NIKKEI 225
Suggested Participants: Portfolio managers, Treasury staff, marketing officers, structured finance specialists, exchange–traded products staff
9:00 – 10:30 ² Introduction to Equity Index Futures
Main indexing procedures: weighting by price or capital
Changing the divisor of an index for continuity
Statistical methodologies for linking movements of components to movements in the index
Contract specifications, quotations, terms, conventions
S&P 500, NIKKEI 225, Major Market Index, etc.
No–arbitrage cost of carry model of pricing
10:45 – 12:30 ² Equity–Indexed Futures Trading and Hedging
Market basket risks and futures fair value and movement
Correlations: dividends, carrying rates, index value
Trading strategies including outright positions, intermarket spreads and intracommodity spreads
Modern portfolio theory and Capital Asset Pricing Model
Structuring synthetic T–bills and synthetic equity positions
Hedging ratios and portfolio beta
12:30 – 1:30 Lunch
1:30 – 3:00 ² Equity Index Options Strategies
Strategies: diversification, volatility skewing, gapping, bullish/bearish sentiments
Mapping positions
Technical analysis of put–call ratios
The portfolio hedge with index options, index puts and calls
Delta and gamma hedging institutional portfolios
Monitoring the hedge: tracking error risk
3:00 – 3:15 Break
3:15 – 5:00 ² Index Spreading
Inter–index spreading: relating two indexes
Ratio of indices approach: capturing performance differences
"Volatility dollars:" factoring in cash ratios
Spread margins: price movements to capture positive carry