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All About Derivative Greeks!                                                                By: Semma Alfatlawi



What Are Derivative Greeks?

Derivative greeks are fundamental in the options market. Each of "the Greeks" are greek symbols that serve to identify different types of risks when it comes to trading options. The risk generated from imperfect pricing relationships between the underlying asset that the option is trading and assumptions made when pricing options are represented by each greek symbol. The derivative greeks are used mainly by portfolio managers and options traders as workers in these fields need to have a deep understanding in how price movements will affect their options investments, and learn to hedge the risk of their positions accordingly.

A Crash Course On Options

Because derivative greeks are built upon the ideas of options, you need to have a good idea about what options are, how they function, and how they are traded. This section will give a quick overview of the basics!

What are options?: Options are contracts that can be traded by investors and are used to have the right (but not the liability) to buy or sell an asset at a specified price for a period of time. Options are a type of derivative, since their value comes from another asset. Options are used to hedge risk against stock market volatility. However, options trading can become very complex and is not for everyone.

What are call options?: A contract that gives you the right (but not the liability) to buy the underlying asset of the option at a given price (i.e. strike price). If the current market price is greater than the strike price, then the option is in the money and has positive returns.

What are put options?: A contract that gives you the right (but not the liability) to sell the underlying asset of the option at a given price (i.e. strike price). If the current market price is less than the strike price, then the option is in the money and has positive returns.

What Does Each Greek Symbol Represent?

Delta (Δ): The MOST IMPORTANT greek in option investments. Delta will tell you how much the price of the option changes for every $1 change in the price of the underlying asset. The higher the delta, the more sensitive an option's price will be to the underlying asset's price. A option in defined to be in the money (ITM) when exercising the option will lead to a profit as the market price of a call option (current market price of the underlying asset) is above the strike price (price you buy the underlying asset at) of the option or the market price of a put option (current market price of the underlying asset) is below the strike price (price you sell the underlying asset at) of the option. A lot of the time, traders use the value of delta in order to predict whether an option will be ITM at expiration. For example, if delta equals 0.40, then the option has approximately a 40% chance of expiring ITM. However, note that larger premiums (price of an option) detract from the profitability of an option.

Range: 0.00 to 1.00 for call options and 0.00 to -1.00 for put options

Gamma(­Øܬ): Gamma is the rate of change of an option's Delta for every $1 change in the price of the underlying asset. It can also be thought of as the derivative of Delta. Thus, you can think of Delta as speed and Gamma as acceleration. Since Delta cannot exceed 1, the closer Delta gets to 1, the smaller Gamma becomes. Following the analogy, the closer we get to top speed, the smaller our acceleration becomes.

Theta(╬ÿ): Assuming all outside factors remain constant, theta tells you how much an option price will decrease by each day. The price of an option decreases each day due to time decay. Time decay occurs because as time goes on and the option's expiration date approaches, the chance that the price of the underlying asset's price will change decreases. Note that this time decay is not linear, and as the expiration date gets closer, the price of the option will decrease at a faster rate. This is because the option's value deteriorates as you get closer to its expiration day since there is no option to exercise after it expires and thus, it will have no value.

Vega(V): Vega is the rate of change of an option's price for every 1% change in the volatility of the underlying asset. Since volatility in the market is what gives options their value, an increase in vega will increase the value of options.

Rho(Ôì┤): Rho is the expected change of an option's price for every 1% change in risk-free interest rates. Rho is positive for call options and negative for put options because interest rates and call options have a direct relationship while interest rates and put options have an inverse relationship. This is because the value of buying a call option instead of directly buying the underlying asset increases as interest rates increase and stocks become less attractive. The opposite can be said for put options. Rho plays a small role in option pricing, but is still an important consideration, especially when risk-free interest rates are expected to change.

And there you have it! The derivative greeks. If you find this interesting and would like to learn more, consider taking FNCE 2170: Financial Derivatives.

Sources:

https://www.investopedia.com/terms/g/greeks.asp

https://www.investopedia.com/terms/i/inthemoney.asp#:~:text=A%20call%20option%20is%20in,options%20that%20are%20not%20ITM

https://learn.robinhood.com/articles/3oJP2aXJ9HDFNf1E8y0qls/what-are-options-greeks/

https://www.schwab.com/learn/story/get-to-know-option-greeks

https://www.forbes.com/advisor/investing/options-trading/

A Guide to Networking Calls and Coffee Chats                                          By: Angela Seo



Why Networking is Important

Networking means building mutually beneficial relationships with other professionals. The benefits of networking include increased visibility, stronger connections, and greater career growth opportunities. Formal networking entails connecting with individuals via methods such as email and LinkedIn. The ultimate goal for professional networking is to connect with people who can help one another grow in their careers. Networks are one of the best ways to find new jobs or roles, even within your current company. A strong professional network leads to job referrals and allows you to gain interviews and job offers.

Receiving a job offer is a result of setting yourself apart from the resumes of other candidates. Networking increases the chances of getting your name recognized and receiving an interview. Current bankers want to network because they benefit if their referred candidate is hired and performs well. Staying in contact is also valuable for them because you may become successful in the industry. A standard method for finding professionals to network with is to search on LinkedIn and reach out via email. Another method is to attend events that are hosted by companies in order to meet professionals. After attending these information sessions, it is critical to immediately follow up and ask for a 1-on-1 informational interview. Networking events are usually too crowded and difficult to make a lasting impression, but attending these events allows you to receive the contact information of workers at a firm.

A key networking strategy is to conduct informational interviews. This is ideal if you have 6-12 months before internship recruiting because this time is needed in order to build relationships. These informational interviews are critical to help you secure interviews and referrals. Utilize LinkedIn or your school's alumni network (MyPenn) in order to reach out to bankers. It is most effective to reach out to bankers who range in level between analysts and VPs because they will have higher response rates than senior bankers. A sample cold email may resemble the following:

"Hello ____,

My name is ____, and I am concentrating in finance at the University of Pennsylvania. I see that you attended Penn and were a part of Wharton Council, Wharton Undergraduate Finance Club, and Club Soccer, which are organizations that I am also a part of. I am really interested in investment banking and feel it would be great to connect and learn more about your experience.

Best, ______"

After focusing on junior and mid-level bankers, you may receive referrals to contact senior bankers. If you do not hear back after requesting an informational interview, follow up 2-3 times via email. The number of informational interviews you land through cold emails is a result of volume and effectiveness. Increasing your chances of an informational interview include sending a large number of emails and mentioning specific common interests or backgrounds with the potential interviewee. It is essential to keep emails concise and mention specific commonalities including clubs, greek systems, volunteering, hometown, or hobbies. If you hear back, set up a call to listen and ask questions about the person's career and any tips that they have for recruiting. At the end, either ask to get your resume passed along to other individuals in the group or referrals to other bankers. If it is possible, potentially take a trip several months later and meet up with the person just before recruiting begins. If this is not possible, send 1-2 email updates or meet with them again to ask more specific questions. After this, you can ask the person to pass along your resume or help you in their firm's recruiting process.

Potential Conversations / Questions:

The main object of these "informational interviews" or coffee chats are to ask thoughtful questions, learn about potential opportunities, and to gain introductions to other contacts. Prior to the information interview, it is critical that you take time to learn about the other person's experiences. While it is important to memorize a few key questions to ask during the chat, you must also let the conversation occur naturally otherwise in order to avoid choppy conversations. Some potential questions include:

● What are your responsibilities on a daily basis?

● What responsibilities of your job are your favorite?

● Has there been any surprises about the job since when you started?

● What were the reasons that you selected to work for this firm instead of other

opportunities?

● What drew you to your current industry group?

● What do you consider as the next steps in your career?

● What is the organizational structure of the firm? How big is the team you work with?

● At what level do different groups/ offices interact at your firm? Are there a lot of shared

resources?

● How would you describe your firm's approach to win deals and new clients?

● Do you have any advice for someone currently navigating the recruiting process?

These questions should be personalized for each call to demonstrate that you have done prior research about the nuances of a person's job. Strong informational interviews are polished and do not make the calls feel like a waste of time. Questions should aim to receive lengthy responses in order to gain insight and potentially common ground. If the call progresses well, it may be

appropriate to ask questions about lifestyle and recruiting at the firm. This may include questions about the person's typical work week and activities that people do outside of work together. Recruiting questions may inquire about preparation material recommendations or how to best position to pursue an interview.

Networking is an essential part of the recruitment process, and it facilitates the building of relationships with industry professionals. Networking can feel repetitive and time consuming, but the process can be improved with efficient strategies. Individuals with strong networks gain access to career growth opportunities and beneficial insight.

Sources & More Information:

https://hbr.org/2023/03/a-beginners-guide-to-networking https://bankingprep.com/investment-banking-networking/ https://careerservices.upenn.edu/blog/2022/06/07/networking-101-what-to-say/ https://mergersandinquisitions.com/investment-banking-networking/