IC301-Derivative Securities/Trading Simulation III

Module Provider: ICMA Centre
Number of credits: 20 [10 ECTS credits]
Terms in which taught: Autumn term module
Pre-requisites: IC102 Introductory Finance/Trading Simulation I
Non-modular pre-requisites:
Modules excluded:
Module version for: 2017/8

Module Convenor: Dr Mike Smith

Email: m.j.smith@icmacentre.ac.uk

Summary module description:

This module is delivered at University of Reading and University of Reading Malaysia.

This is a very practical course focusing mainly on option/volatility trading and risk management. The seminars all take place in the dealing room, and students will manage the risk, as market makers, of equity options portfolios on ICTrader.


The course is designed to give students a basic practical working knowledge of the pricing and trading of derivative securities, and in particular options. Most textbooks on the subject are either too mathematical/theoretical or too practitioner oriented, and this module attempts to bridge the gap between the two. By the end of the course students should be able to “speak the language” of the derivatives market whilst at the same time have an intuitive grasp of the subject. Whilst option theory is of obvious importance, the emphasis of this course is on practical application – in particular, we will look at the time/risk dynamics of options in a trading environment. The derivatives industry impacts on all sectors of investment banking, and whether or not students choose a career in derivatives trading/sales/research, they will find this course extremely useful. The overriding philosophy of the course is: “learning by doing”.



Assessable learning outcomes:

By the end of the module, students will be able to: Describe and characterize derivatives and their markets; Evaluate and apply pricing and trading methods; Perform analysis of financial derivatives data; Manage the trading risk of an equity options portfolio;Understand basic financial engineering with options;Trade volatility.

Additional outcomes:

Outline content:

Topic 1: Review of Futures and Forwards and Option Basics Topic 2: Option Price Sensitivities "The Greeks": Risks and Trading Applications Topic 3: Volatility and Volatility Spreads Topic 4: Financial Engineering with Volatility Spreads Topic 5:An Introduction to Exotic Options 6:Option pricing:Topic 7: The VIX Index and Volatility Smiles Topic 8: Review of Past Exam papers

Global context:

Options and derivatives are traded in all asset classes on a global basis. An understanding of the risks associated with this asset class is critical in helping to understand the types of risks which global institutions are exposed to through their use of derivatives to speculate, hedge or engineer.

Brief description of teaching and learning methods:

The central learning method of this module is "learning by doing" and uses a combination of lectures and applied dealing room seminars. The latter are desiged to allow the students to put into practice the trading and risk management concepts taught in the lectures. During the seminars, students manage the risk of an equity options portfolio in a dynamic trading environment. The students have remote access to the simulation so that they can further develop their understanding outside the classroom environment.The students also use a dedicated options analysis spreadsheet to analyse option spreads under varying market conditions. Handouts are provided. Students are made aware of information available on the internet about derivative contracts and exchanges.

Contact hours:
  Autumn Spring Summer
Lectures 20
Practicals classes and workshops 20
Guided independent study 160
Total hours by term 200.00
Total hours for module 200.00

Summative Assessment Methods:
Method Percentage
Written exam 70
Practical skills assessment 10
Class test administered by School 20

Other information on summative assessment:
1.5 hour unseen written paper (answer all the questions)
1.5 hour class test (20 multiple choice questions)
10% practical skills assessment is based on trading.

Formative assessment methods:

Penalties for late submission:
The Module Convenor will apply the following penalties for work submitted late, in accordance with the University policy.

  • where the piece of work is submitted up to one calendar week after the original deadline (or any formally agreed extension to the deadline): 10% of the total marks available for the 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.

  • The University policy statement on penalties for late submission can be found at: http://www.reading.ac.uk/web/FILES/qualitysupport/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.

    Length of examination:
    1.5 hour unseen written paper

    Requirements for a pass:
    A minimum mark of 40%.

    Reassessment arrangements:
    Re-examination for Finals takes place in the Summer term of the following year.

    Additional Costs (specified where applicable):
    1) Required text books: Sheldon Natenburg- Option Volatility and Pricing: Advanced Trading Strategies and Techniques, 2nd Edition, Dec 2014ISBN-10: 0071818774
    2) Specialist equipment or materials:
    3) Specialist clothing, footwear or headgear:
    4) Printing and binding:
    5) Computers and devices with a particular specification:
    6) Travel, accommodation and subsistence:

    Last updated: 31 March 2017

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