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Derivatives Fundamentals and Options Licensing Course (DFOL)

 

Learn About:

  • Derivatives what they are, types, where they trade, etc.
  • Key differences between exchange-traded and over-the-counter products
  • Exchange-traded options, pricing, hedging, speculating
  • OTC options like caps, floors, collars and exotics
  • Swaps including basic features, role of the swap dealer, and types
  • How investment funds and structured products use derivatives
  • The function of exchanges and clearinghouses
  • OTC forwards and other futures contracts
  • Determining client suitability
  • Strategies based on market outlook and risk tolerance level
  • Entering orders
  • Executing orders on exchanges
  • Payment for options, exercise assignment, or option expiry
  • Tax implications of listed options trading

Learning Experience

CSI's online learning system helps you meet your study goals. You'll benefit from:

  • Learning objectives that keep you focused
  • Interactive tools to help you evaluate and apply course material
  • Online post-chapter review questions to assess your progress
  • Course updates to ensure you’re learning the most current and up-to-date practical material in your studies
  • Online discussion forums and assistance from CSI's academic support specialists

What you'll learn

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In this chapter, we describe the interrelationships between the various participants in the Canadian securities industry. In particular, we discuss the important role that investment dealers and other financial intermediaries play in channelling funds between lenders and borrowers.

Topics covered in this chapter are:

  • What Is a Derivative?

  • Common Features of All Derivative Instruments

  • Types of Derivative Instruments

  • Key Differences Between Option-Based and Forward-Based Derivatives

  • Exchange-Traded and Over-the-Counter Derivatives

  • Key Differences Between Exchange-Traded and Over-the-Counter Derivatives

  • Types of Underlying Interests

  • Commodities

  • Financials

  • Why Are Derivatives Useful?

  • Operational Considerations

  • Who Uses Derivatives and to What Extent Are They Used?

Topics covered in this chapter are:

  • A Brief Overview of Forward-Based Derivatives

  • A History of Forwards

  • What Is a Forward Agreement?

  • What Is a Futures Contract?

  • Organized Futures Markets

  • Buying and Selling a Futures Contract

  • Cash Settlement

  • Margin Requirements and Marking-to-Market

  • Futures Trading and Leverage

  • Reading a Futures Quotation Page

  • Contract Size and the Value of the Underlying Interest

Topics covered in this chapter are:

  • A Brief Overview of Futures Pricing

  • Futures Market versus Cash Market

  • Cost of Carry

  • Basis

  • Cash and Carry Arbitrage

  • Reverse Cash and Carry Arbitrage

  • Conditions that Facilitate Arbitrage

  • Inverted Markets

  • Convergence

Topics covered in this chapter are:

  • Hedging

  • Types of Hedges

  • Imperfect Hedges

  • Optimal Hedge Ratio

Topics covered in this chapter are:

  • What Attracts Speculators?

  • Types of Speculators

  • Price Forecasting Techniques

  • Fundamental Analysis

  • Technical Analysis

Topics covered in this chapter are:

  • The History of Options

  • Key Option Terminology and Definitions

  • Application of Key Terms and Definitions

  • Why Options Are Bought

  • Why Options Are Written

  • Other Related Benefits of Options

  • Advantages of Exchange-Traded Options versus Over-the-Counter Options

  • Reading Option Quotations

  • Common Questions Pertaining to the Options Market

Topics covered in this chapter are:

  • Pricing of Options

  • Major Factors that Affect the Price of an Option

  • Intrinsic Value

  • Time Value

  • Delta

Topics covered in this chapter are:

  • Over-the-Counter Interest Rate Options

  • Interest Rate Caps

  • Interest Rate Floors

  • Interest Rate Collars

  • Exotic Options

Topics covered in this chapter are:

  • Overview of the Swap Market

  • What Is a Swap?

  • Role of the Swap Dealer

  • History of Swaps

  • OTC Derivatives Market Reform

Topics covered in this chapter are:

  • Plain Vanilla Interest Rate Swap

  • A Note on Rate and Day Count Conventions

  • The Structure of an Interest Rate Swap

  • Pricing an Interest Rate Swap

  • Indication Pricing Schedule

  • Credit Risk

  • Terminating an Interest Rate Swap

  • Why are Interest Rate Swaps Used?

  • Deliverable Interest Rate Swap Futures and Centrally Cleared Swaps

  • Other Types of Interest Rate Swaps

  • Swaptions

Topics covered in this chapter are:

  • The Structure of a Currency Swap

  • Currency Swaps as a Portfolio of Fixed- and/or Floating-Rate Bonds

  • Pricing of Currency Swaps

  • Reasons for Currency Swaps

Topics covered in this chapter are:

  • Credit Derivatives

  • The Role of Credit Derivatives

  • The Structure of Credit Default Swaps (CDSs)

  • What are Index CDSs?

  • Why are CDSs and Index CDSs Used?

Topics covered in this chapter are:

  • Equity Swaps

  • Commodity Swaps

Topics covered in this chapter are:

  • Derivatives Use by Investment Funds and Structured Products

  • Regulatory Restrictions on Derivatives Use by Mutual Funds

  • Mutual Fund Use of Derivatives

  • Derivatives for Non-Hedging Purposes

  • Potential Risks of Derivatives Use by Mutual Funds

Topics covered in this chapter are:

  • Hedge Funds – What Are They?

  • Hedge Fund and Commodity Pool Regulation

  • How Hedge Funds Use Derivatives

  • Risks of Derivatives

  • Advantages of Derivatives

  • Disadvantages of Derivatives

Topics covered in this chapter are:

  • Principal-Protected Notes (PPNs) – What Are They?

  • PPN Structures and the Use of Derivatives

  • CPPI and Zero-Coupon Bond Plus Call Option Structures — Key Differences

Topics covered in this chapter are:

  • Introduction

  • Commodity ETFs

  • Swap-Based ETFs and the Synthetic Replication of Indexes

  • Leveraged and Inverse ETFs

Topics covered in this chapter are:

  • Long Call

  • Married Put

  • Covered Call (also known as Covered Write)

  • Put Writing

  • Benchmark Indexes for Income-Producing Option Strategies

  • A Brief Review of Spreads, Straddles and Combinations

  • Bull Call Spread

  • Bull Put Spread

This chapter will discuss the features and risk characteristics of the various types of mutual funds. You will learn about the different fund management styles and strategies, and the theories behind them. You will also learn how to make appropriate recommendations, including price calculation, the various types of withdrawal plans, and the tax consequences of redemption. Finally, you will learn how mutual fund performance is measured and how to assess the performance of one fund against that of another.

Topics covered in this chapter are:

  • Long Put

  • Protected Short Sale

  • Covered Put Sale

  • Call Writing

  • Bear Put Spread

  • Bear Call Spread

Topics covered in this chapter are:

  • An Introduction to Volatility

  • Importance of Volatility to Options Trading

  • Short Volatility Strategies

  • Long Volatility Strategies

Topics covered in this chapter are:

  • Options Regulation

  • Individual Registration Categories

  • Registrant Code of Ethics

  • Registrant Standards of Conduct

  • Trading and Sales Practices

  • Regulations Covering Registrants Employed by IIROC Member Firms or Approved Participants of the Bourse

Topics covered in this chapter are:

  • Completion and Approval of Option Account Application Forms

  • Significant Items of Information on the Option Account Application Form

  • Unanswered Questions on the Option Account Application Form

  • Responsibility for Final Acceptance of an Option Account

  • Completion of the Options Trading Agreement Prior to Option Transactions

  • Risk Disclosure Statement

  • Applying a Suitability Concept to Option Recommendations

  • Managed Accounts and Simple Discretionary Accounts

  • Transfer of Option Accounts from One Member Firm to Another

  • Commissions

Topics covered in this chapter are:

  • Basic Margin Terms

  • Factors Affecting the Amount of Margin Required

  • IIROC and Bourse de Montréal Minimum Margin Requirements for Equity and index Option Strategies

  • Meeting Margin Calls

  • Capital Requirements for Firm and Market Maker Accounts

  • Member Firm Clearing Deposit Requirements for positions at the Clearing Corporation

Topics covered in this chapter are:

  • Essential Information Required for All Types of Orders

  • Order Ticket Information Unique to Options

  • A Generic Order Entry Screen

  • Types of Buy and Sell Orders

  • Types of Contingent Orders

  • Implied Orders and the Bourse De Montréal’s Implied Pricing Algorithm

  • The Bourse de Montréal’s User-Defined Strategies (UDS) Functionality

Topics covered in this chapter are:

  • Professional versus Non-Professional Option Traders

  • Federal Tax Consequences for Non-Professional Traders

  • Federal Tax Consequences for Professional Traders

  • Tax Consequences for LEAPS® Investors

  • Allowable Use of Exchange-Traded Options in RRSPs, RRIFs and RESPs

Topics covered in this chapter are:

  • Opening Corporate Option Accounts

  • Opening Option Accounts for Acceptable Institutions

  • Know Your Client Rule

  • Permissible Option Transactions for Pension Plans, Insurance Companies and Trust Companies in Canada

  • Canadian Mutual Funds

Topics covered in this chapter are:

  • What is a Clearing Corporation?

  • Canadian Derivatives Clearing Corporation

  • Options Clearing Corporation

  • Functions of a Clearing Corporation

Topics covered in this chapter are:

  • What is an Options Exchange?

  • Providing a Trading Forum

  • Adding and Deleting Option Classes

  • Adding and Deleting Option Series

  • Expiration Cycles on the Bourse

  • Setting Reporting Levels, Position Limits and Exercise Limits

  • Setting Capital and Margin Rules

  • Developing and Administrating Rules Governing the MarketPlace and Approved Participants Dealing in Options

Topics covered in this chapter are:

  • The Bourse de Montréal Inc.

  • The U.S. Exchanges

Topics covered in this chapter are:

  • Obligations of Market Makers

  • How Market Makers Reduce or Eliminate Their Exposure

Topics covered in this chapter are:

  • Adjustments for Stock Splits

  • Adjustments for Stock Dividends

  • Cash Dividends

  • Impact of Dividends on Option Premiums

  • Rights Issues

Topics covered in this chapter are:

  • Unique Characteristics and Risks of Index Options

  • Key Index Option Contracts

Topics covered in this chapter are:

  • Exchange Rate Quoting Convention

  • Selecting the Right Option

  • Unique Characteristics and Risks of North American Listed Currency Options

Approximate Hours of Study**
Hours of Study 60 - 90 hours

** In order to provide some guidance to course participants as to the length of time it will take to be sufficiently prepared to write the final examination, CSI has prepared this estimate of the number of hours an average participant could possibly expect to spend studying for a course. Please note that these are only recommended hours of study developed based on research and our course content, however, this does not mean that some students with exceptional backgrounds would not take less time than recommended or that students with no background at all in finance or economics would not take longer than the maximum.

EXAM WEIGHTINGS
(weightings are approximate)
 
An Overview of Derivatives 3%
Futures Contracts 11%
Exchange Traded Options 14%
Swaps 7%
How Investment Funds and Structured Products Use Derivatives 6%
A Review of the Risk and Reward Profiles of Common Option Strategies 16%
Opening and Maintaining Option Accounts 25%
The Role of Clearing Corporations and Exchanges in Listed Options Trading 10%
Contract Adjustments and Special Considerations and Risks of Non-Equity Options 8%
EXAM INFORMATION  
Exams 1
Exam Format Paper Or Computer Based
Exam Duration 3 Hours
Question Format Multiple Choice
Questions Per Exam 110
Attempts Allowed Per Exam 3*
Passing Grade 60%
Assignments None
ENROLMENT PERIOD  
Enrolment Period 1 year
COURSE COMPLETION NOTICE AND WALL CERTIFICATE

On successful completion of this course you will be able to download a Notice of Course Completion available through your student profile. This will remain on your profile as formal indication of course completion.

CSI will mail you a wall certificate within 4 - 6 weeks of course completion. If you would like to purchase a frame to display your certificate please click here. Please ensure that your First and Last Name on your profile match your First and Last Name on your Government Issued Photo identification - this will ensure you receive an accurate certificate.

CSI will be pleased to issue an Honors Certificate to all students who obtain a final course mark of 85% or higher.

*There is no charge for your first attempt at a paper-based exam within Canada, as long as it's at a regular exam center and you provide a minimum of 14 days notice before the date that you want to write the exam. If you would like to write a computer-based exam, an additional fee will be required.

Each subsequent paper-based exam attempt at a regular exam centre within Canada will also require an additional fee. This fee is in addition to any special, computer-based or international fees that may apply. You must provide a minimum of 14 days notice within Canada at a regular exam centre and 4 weeks notice for all other centres. Please note that the date of the exam is not part of any notice period.

†Please note: Access to your online materials will close 2 weeks after successful course completion or course expiry (whichever comes first). This course can be extended by 1 year provided you have not exceeded the attempts allowed for each exam. You can view CSI extension fees here. Your enrolment period can only be extended one time.

Important: During a student's enrolment period, CSI may update this course. In that case, details about the update and how it may affect students will be posted online via My CSI. Students are held responsible for and are examinable on the content in the course textbook(s) provided at the time of enrollment unless stated otherwise in My CSI. Students are encouraged to check My CSI regularly throughout their enrolment period.

Continuing Education (CE) Credits

Click the links below or the buttons at the top of the page on the right side to access CE accreditation information. To search for specific course information, press Ctrl + F and then enter the course name to search the document for the information you are interested in.

National/Provincial (Excluding Quebec)
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Quebec (IQPF/CSF)
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Please note: While CSI makes every effort to ensure that the information is up-to-date, we are unfortunately unable to fully guarantee its accuracy. The information listed in the charts above may be subject to change.

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