Patrick Boyle

These classes are all based on the book Trading and Pricing Financial Derivatives, available on Amazon at this link. https://amzn.to/2WIoAL0
Check out our website http://www.onfinance.org/

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What is Dynamic Hedging?
A hedging technique which seeks to limit an investment's exposure to delta and gamma by adjusting the hedge as the underlying security changes (hence, "dynamic"). The strategy is frequently used by financial professionals working with derivatives. Derivatives dealers often find that they hold large numbers of short options positions on an underlier which they want to offset by purchasing long options, but that they cannot find long options because these types of options are not as available. To reduce exposure the trader will create a delta hedge of a non-linear position, such as an exotic option, with a linear position, such as a spot trade.
The deltas of the linear and non-linear positions offset. As the value of the underlying changes the trader will have to take out new linear positions to offset the changing non-linear delta.

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These classes are all based on the book Trading and Pricing Financial Derivatives, available on Amazon at this link. https://amzn.to/2WIoAL0
Check out our website http://www.onfinance.org/

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What is a Straddle? Options Trading Strategy - Options Combinations

These classes are all based on the book Trading and Pricing Financial Derivatives, available on Amazon at this link. https://amzn.to/2WIoAL0
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An options straddle involves buying a call and put with same strike price and expiration date. If the stock price is close to the strike price at expiration of the options, the straddle leads to a loss. However, if there is a sufficiently large move in either direction, a significant profit will result. A straddle is appropriate when an investor is expecting a large move in a stock price but does not know in which direction the move will be.

The purchase of the two options is known as a long straddle, while the sale of the two options is known as a short straddle.

What is a Long Straddle?
A long straddle involves "going long," in other words, purchasing both a call option and a put option on some underlying. The two options are bought at the same strike price and expire at the same time. The owner of a long straddle makes a profit if the underlying price moves a long way from the strike price, either above or below. Thus, an investor may take a long straddle position if they think the market is going to be highly volatile, but they do not know in which direction it is going to move. This position is a limited risk, meaning the most a purchaser may lose is the cost of both options. At the same time, there is unlimited profit potential. This is quite an expensive options position as the trader is paying two premiums, so quite a large move is required to be profitable.

What is a short straddle?
A short straddle is a non-directional options trading strategy that involves simultaneously selling a put and a call of the same underlying security, strike price and expiration date. The profit is limited to the premium received from the sale of put and call. The risk is virtually unlimited as large moves of the underlying security's price either up or down will cause losses proportional to the magnitude of the price move. A maximum profit upon expiration is achieved if the underlying security trades exactly at the strike price of the straddle. In that case both puts and calls comprising the straddle expire worthless allowing straddle owner to keep full credit received as their profit. This strategy is called "nondirectional" because the short straddle profits when the underlying security changes little in price before the expiration of the straddle. The short straddle can also be classified as a credit spread because the sale of the short straddle results in a credit of the premiums of the put and call.

A risk for holder of a short straddle position is unlimited due to the sale of the call and the put options which expose the investor to unlimited losses (on the call) or losses limited to the strike price (on the put), whereas maximum profit is limited to the premium gained by the initial sale of the options.


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These classes are all based on the book Trading and Pricing Financial Derivatives, available on Amazon at this link. https://amzn.to/2WIoAL0
Check out our website http://www.onfinance.org/

Follow Patrick on twitter here: https://twitter.com/PatrickEBoyle

There is no free lunch with stocks and bonds. Options are no different. Options trading involves certain risks that the investor must be aware of before making a trade.

Options are derivatives of financial securities – their value depends on the price of some other asset. That is essentially what the term, derivative, means. There are many different types of securities that fall under the label of derivative, including calls, puts, futures, forwards, swaps (of which there are many types), and credit derivatives which we will cover in a future video.

Options represent the right (but not the obligation) to take some sort of action (buy or sell an underlying security) by a predetermined date (the expiration date).

There are two types of options, calls and puts. And there are two sides to every option transaction -- the party buying the option, and the party selling (also called writing) the option. Each side comes with its own risk/reward profile and may be entered into for different strategic reasons. The buyer of the option is said to have a long position, while the seller of the option (the writer) is said to have a short position.

Note that tradable options are contracts between two parties. The companies whose securities underlie the option contracts are themselves neither involved in the transactions nor the cash flows between the various parties in the market. In any option trade, the counterparty may be another investor, or perhaps a market maker (a type of middle man offering to both buy and sell a particular security in the hopes of making a profit on the differing bid/ask prices). All parties it should be noted do not directly face each other, instead they face the options clearinghouse, and I have a separate video on that topic.

What's a call option?
A call option, is the option to buy the underlying stock at a pre-agreed price (the strike price) by a pre-agreed date (the expiration date). The buyer of a call has the right to buy shares at the strike price until expiration. The seller of the call (also known as the call "writer") is the one with the corresponding obligation. If the call buyer decides to buy (known as exercising the option) the call writer is obliged to sell their shares to the call buyer at the strike price.

If an investor bought a call option on Apple Computer stock with a strike price at $100 expiring in two months. That call buyer has the right to exercise that option, paying $100 per share, and receiving the shares. The writer of the call would have the obligation to deliver those shares and be happy receiving $100 for them.

What's a put option?
If a call is the right to buy, then perhaps unsurprisingly, a put is the option to sell the underlying stock at a predetermined strike price until a fixed expiry date. The put buyer has the right to sell shares at the strike price, and if he/she decides to sell, the put writer is obliged to buy at that price.

Why use options?
A call buyer seeks to make a profit when the price of the underlying shares rises. The call price will rise as the shares do. The call writer is making the opposite bet, hoping for the stock price to decline or, at the very least, rise less than the amount received for selling the call in the first place.

The put buyer profits when the underlying stock price falls. A put increases in value as the underlying stock decreases in value. Conversely, put writers are hoping for the option to expire with the stock price above the strike price, or at least for the stock to decline an amount less than what they have been paid to sell the put.

We'll note here that relatively few

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Donald Trump and Elon Musk have been locked in a public fight after Musk spent days bashing Trump's "big, beautiful bill" — a multi-trillion dollar budget key to unlocking the president's agenda currently being voted on in the Senate. In return, the president threatened to cut the federal government's contracts with Musk's companies, including SpaceX.

Patrick's Books:
Statistics For The Trading Floor: https://amzn.to/3eerLA0
Derivatives For The Trading Floor: https://amzn.to/3cjsyPF
Corporate Finance: https://amzn.to/3fn3rvC

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What is a Butterfly Spread? - Options Trading Strategies Explained

These classes are all based on the book Trading and Pricing Financial Derivatives, available on Amazon at this link. https://amzn.to/2WIoAL0
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What is a Butterfly Spread?
A butterfly spread is an option strategy that combines bull and bear spreads. Butterfly spreads use four option contracts with the same expiration but three different strike prices. The trader sells two option contracts at the middle strike price, buys one option contract at a lower strike price, and buys another option contract at a higher strike price. Puts or calls can be used for a butterfly spread. The strategy is used when the trader believes the price of the underlying asset will not deviate much from the current price. Butterfly spreads have limited risk, and the maximum loss is the net premium paid to take the position. Profit is also capped.

Long Call Butterfly Spread
The long butterfly call spread is created by buying one in-the-money call option with a low strike price, writing two at-the-money call options, and buying one out-of-the-money call option with a higher strike price. A net debit is created when entering the trade.

Short Call Butterfly Spread
The short butterfly spread is created by selling one in-the-money call option with a low strike price, buying two at-the-money call options, and selling an out-of-the-money call option at a higher strike price. A net credit is created when entering the position. This position profits if the price of the underlying moves toward the upper or lower strike price.

Long Put Butterfly Spread
The long put butterfly spread is created by buying one put with a lower strike price, selling two at-the-money puts, and buying a put with a higher strike price. A net debit is created when entering the position. Like the long call butterfly, this position has maximum profit when the underlying stays at the strike price of the middle options.

Short Put Butterfly Spread
The short put butterfly spread is created by writing one out-of-the-money put option with a low strike price, buying two at-the-money puts, and writing an in-the-money put option at a higher strike price. This strategy profits if the underlying moves toward the upper or lower strike prices.

Iron Butterfly Spread
The iron butterfly spread is created by buying an out-of-the-money put option with a lower strike price, writing an at-the-money put option with a middle strike price, writing an at-the-money call option with a middle strike price, and buying an out-of-the-money call option with a higher strike price. The result is a trade with a net credit that's best suited for lower volatility scenarios. The maximum profit occurs if the underlying stays at the middle strike price.

Reverse Iron Butterfly Spread
The reverse iron butterfly spread is created by writing an out-of-the-money put option at a lower strike price, buying an at-the-money put option at a middle strike price, buying an at-the-money call option at a middle strike price, and writing an out-of-the-money call option at a higher strike price. This creates a net debit trade that's best suited for high-volatility scenarios. Profit occurs when the price of the underlying moves toward the upper or lower strike prices.

Commissions can add up when trading butterfly spreads because of the multiple options positions involved.


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As Donald Trump and Xi Jinping wrap up their summit in Beijing with little more to show for it than a few awkward handshakes, the media is left wondering where the big breakthrough went. But as we explore in this video, the failure of the "beans and Boeings" summit wasn’t a political failure—it was a certainty. Relying on the insights of economist Michael Pettis, we break down why trade surpluses and deficits are driven by domestic savings and investment choices, rather than trade policies or tariffs. From China’s systematic suppression of household consumption to the United States' structural trap as the global consumer of last resort, the underlying economic imbalances forcing this trade war cannot be fixed by podium announcements.

Patrick's Books:
Statistics For The Trading Floor: https://amzn.to/3eerLA0
Derivatives For The Trading Floor: https://amzn.to/3cjsyPF
Corporate Finance: https://amzn.to/3fn3rvC

Ways To Support The Channel
Patreon: https://www.patreon.com/PatrickBoyleOnFinance
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Patrick Boyle On Finance Podcast:
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Prices for the most in-demand luxury watches have been in freefall on the secondary market since March 2022 as a pandemic-era rally fizzled. Are luxury watches a good investment, how do watch prices perform in the long run?

Patrick's Books:
Statistics For The Trading Floor: https://amzn.to/3eerLA0
Derivatives For The Trading Floor: https://amzn.to/3cjsyPF
Corporate Finance: https://amzn.to/3fn3rvC

Ways To Support The Channel
Patreon: https://www.patreon.com/PatrickBoyleOnFinance
Buy Me a Coffee: https://www.buymeacoffee.com/patrickboyle

Visit our website: https://www.onfinance.org
Follow Patrick on Twitter Here: https://twitter.com/PatrickEBoyle

Business Inquiries ➡️ [email protected]

Patrick Boyle On Finance Podcast:
Spotify: https://open.spotify.com/show/7uhrWlDvxzy9hLoW0EYf0b
Apple: https://podcasts.apple.com/us/podcast/patrick-boyle-on-finance/id1547740313
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These classes are all based on the book Trading and Pricing Financial Derivatives, available on Amazon at this link. https://amzn.to/2WIoAL0
Check out our website http://www.onfinance.org/

Follow Patrick on twitter here: https://twitter.com/PatrickEBoyle

One problem with using financial futures contracts to hedge a portfolio of assets, is that a perfect futures contract may not exist. Thus a perfect hedge cannot be achieved.

An example would be, if an airline company executive wished to hedge the company's exposure to jet fuel prices, and found that there was no jet fuel futures market or if they found that a futures market exists but it is so illiquid that it is functionally useless.

The CFO then needs to find a way to use a different contract that is highly correlated with the underlying asset and has a similar variance. This is done using the minimum variance hedge ratio.
The minimum variance hedge ratio (or optimal hedge ratio) is the ratio of futures position relative to the spot position that minimizes the variance of the position. In this video we will learn how to do this calculation.

We also learn how to use beta in hedging a portfolio of stocks using S&P500 index futures.

minimum variance portfolio.

beta hedging equity portfolio

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All slides are available on my Patreon page: https://www.patreon.com/PatrickBoyleOnFinance

Applied Portfolio Management - How Hedge Funds Invest. Part Two

In yesterdays class we learned what a hedge fund is, why people invest in them, and how hedge funds and other alternative investments might add value in a diversified portfolio.

Today we talk about a number of hedge fund strategies such as merger arbitrage or event driven, index arbitrage, index adds and deletes, macro investing, statistical arbitrage, pairs trading and share class trades. We learn how these strategies work, and what the returns look like.

Watch the whole series to learn everything you need to know about asset management.

Books mentioned in the videos:
When Genius failed by Roger Lowenstein https://amzn.to/2WZt28h
Corporate Finance by McDougall and Boyle https://amzn.to/3avUEp7



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