In the tutorial on risk management applications of options, we will look at how various options strategies can be used for managing risk in a company. Before we start let’s review the key notations used in options formulas:

Time 0 refers to the time when an options strategy is initiated

Time T refers to the time the option will expire

T – 0 is the time to expiry

t is the current time

S refers to the spot price. So, S0 is the price at time 0. ST is the price at time T.

X is the exercise or strike price

c is the call price. Small c is for European calls and capital C is for American calls.

p is the put price. Small p is for European puts and capital P is for American puts.

r is the risk-free rate