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At CSI, the well-being of our valued learners and staff is our highest priority. Learn more about our response to COVID-19 and changes to our exam delivery format.

Derivatives Fundamentals and Options Licensing Course (DFOL)

 

What will you learn through this course?

  • 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

How will you learn?

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
  • Online end of section quizzes

What's New

The DFOL is updated annually and incorporates the reformulation work and currency updates carried out in the DFC and OLC. For 2020, we have:

  • Fully revised all chapters covering mutual funds and hedge funds to take into account the launch of alternative mutual funds (Liquid Alts)
  • Updated the chapters covering index options following products specification changes at the Montreal Exchange
  • Added key terms to the Glossary
  • Updated online review questions
  • Updated Check product questions
  • Added online End of Section Quizzes

What you'll learn?

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Syllabus Click Here to Expand

Section 1 - An Overview of Derivatives

Chapter 1 - An Overview of Derivatives

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?

Section 2 - Futures Contracts

Chapter 2 - Basic Features of Forward Agreements and Futures Contracts

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

Chapter 3 - Pricing of Futures Contracts

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

Chapter 4 - Hedging with Futures Contracts

Topics covered in this chapter are:

  • Hedging

  • Types of Hedges

  • Imperfect Hedges

  • Optimal Hedge Ratio

Chapter 5 - Speculating with Futures Contracts

Topics covered in this chapter are:

  • What Attracts Speculators?

  • Types of Speculators

  • Price Forecasting Techniques

  • Fundamental Analysis

  • Technical Analysis

Section 3 - Exchange-Traded Options

Chapter 6 - Basic Features of Options

Topics covered in this chapter are:

  • The History of Options

  • Key Option Terminology and Definitions

  • Application of Key Terms and Definitions

  • Why Investors Buy Options

  • Why Investors Write Options

  • 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

Chapter 7 - Pricing of Options

Topics covered in this chapter are:

  • Pricing of Options

  • Major Factors that Affect the Price of an Option

  • Intrinsic Value

  • Time Value

  • Delta

Chapter 8 - Over the Counter Options

Topics covered in this chapter are:

  • Over-the-Counter Interest Rate Options

  • Interest Rate Caps

  • Interest Rate Floors

  • Interest Rate Collars

  • Exotic Options

Section 4 - Swaps

Chapter 9 - Introduction to Swaps

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

Chapter 10 - Interest Rate Swaps

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

Chapter 11 - Currency Swaps

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

Chapter 12 - Credit 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?

Chapter 13 - Other Types of Swaps

Topics covered in this chapter are:

  • Equity Swaps

  • Commodity Swaps

Section 5 - How Investment Funds and Structured Products Use Derivatives

Chapter 14 - Mutual Funds

Topics covered in this chapter are:

  • Regulatory Framework for Canadian Investment Funds and Structured Products

  • Use of Derivatives in Mutual Funds

  • Risks of Derivatives Use by Mutual Funds

Chapter 15 - Alternative Mutual Funds, Closed-End Funds, and Hedge Funds

Topics covered in this chapter are:

  • Use of Derivatives by Alternative Mutual Funds and Closed-End Funds

  • Alternative Investments and Alternative Strategies

  • Hedge Funds Compared to Alternative Mutual Funds

  • Types of Alternative Strategies

  • Advantages and Disadvantages of Derivatives

Chapter 16 - Principle Protected Notes (PPNs)

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

Chapter 16 - Principle Protected Notes (PPNs)

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

Chapter 17 - Derivative-Based ETFs

Topics covered in this chapter are:

  • Introduction

  • Commodity ETFs

  • Swap-Based ETFs and the Synthetic Replication of Indexes

  • Leveraged and Inverse ETFs

Vol 2 Section 6 - A Review of the Risk and Reward Profiles of Common Option Strategies

Chapter 18 - Bullish Option Strategies

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

Chapter 19 - Bearish Option Strategies

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

Chapter 20 - Option Volatility Strategies

Topics covered in this chapter are:

  • An Introduction to Volatility

  • Importance of Volatility to Options Trading

  • Short Volatility Strategies

  • Long Volatility Strategies

Section 7 - Opening and Maintaining Option Accounts

Chapter 21 - Conduct and Practices

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

Chapter 22 - Opening and Maintaining Retail Option Accounts

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

Chapter 23 - Client Margin Requirements

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

Chapter 24 - Entering Listed Option Orders

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

Chapter 25 - Canadian Tax Aspects of listed Options Trading

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

Chapter 26 - Opening and Maintaining institutional options Accounts

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

Section 8 - The Role of Clearing Corporations and Exchanges in Listed Options Trading

Chapter 27 - The Role of Clearing Corporations in Listed Options Trading

Topics covered in this chapter are:

  • What is a Clearing Corporation?

  • Canadian Derivatives Clearing Corporation

  • Options Clearing Corporation

  • Functions of a Clearing Corporation

Chapter 28 - The Role of Exchanges in Listed Options Trading

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

Chapter 29 - Listed Options Trading

Topics covered in this chapter are:

  • The Bourse de Montréal Inc.

  • The U.S. Exchanges

Chapter 30 - A Day in the Life of a Market Maker

Topics covered in this chapter are:

  • Obligations of Market Makers

  • How Market Makers Reduce or Eliminate Their Exposure

Section 9 - Contract Adjustments and Special Considerations and Risks of Non-Equity Options

Chapter 31 - The Impact of Stock Splits, Dividends and Rights Issues on Option Contracts

Topics covered in this chapter are:

  • Adjustments for Stock Splits

  • Adjustments for Stock Dividends

  • Cash Dividends

  • Impact of Dividends on Option Premiums

  • Rights Issues

Chapter 32 - Stock Index Options

Topics covered in this chapter are:

  • Unique Characteristics and Risks of Index Options

  • Key Index Option Contracts

Chapter 33 - Currency Options

Topics covered in this chapter are:

  • Exchange Rate Quoting Convention

  • Selecting the Right Option

  • Unique Characteristics and Risks of North American Listed Currency Options

What are the approximate hours of study?

Approximate Hours of Study**
Hours of Study 95 - 135 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 Proctored (remote or in person at a test centre)
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 confirmation of course completion.

CSI will mail you a wall certificate within 4 - 6 weeks of course completion. Frames to display your certificate are available. 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 student who obtain a final course mark of 85% or higher.

* The first attempt is included in the course enrolment fee. Further attempts incur fees.

†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.

Continuing Education (CE) Credits

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