Swaps and Credit Derivatives - Revision Lecture

Warren Buffett’s Berkshire Hathaway slumps to $50bn loss, their largest quarterly loss ever. The stock market sell-off hurt investment holdings despite an uptick in operating profit.Warren Buffett, one of history’s greatest investors, has not been immune to the rough recent market environment. Today's video is about Buffett's quarterly report Q1 2020 or 10-Q released May 2, 2020, and what it tells us about investing in these uncertain times.Berkshire Class A shares were down around 19% YTD as of Friday afternoon May 1, 2020, off 16% over the past 12 months. The S&P 500 is down 3% over the same period.The Berkshire Hathaway 2020 Annual Meeting goes live on the internet this afternoon. This video gives a preview of some of the topics likely to be discussed.Buffett recently called oil volatility and the panic hitting markets a “big one-two punch.”The COVID-19 pandemic will likely be the largest event in insurance-industry history because it affects both sides of the balance sheet. How will this affect Berkshire Hathaway?Auto insurers, such as Berkshire’s Geico, have returned some premiums to consumers as driving decreases, which could translate into fewer accidents. The industry may also see potential claims from business interruptions, canceled events, and workers’ compensation claims.The COVID-19 lockdown has not been kind to value portfolios, value stocks today are highly economically sensitive and levered. By contrast, growth stocks had limited leverage coming into this crisis and software-based business models better suited to the economy effectively closing.Buffett highlighted that many of the biggest tech stocks in the S&P don’t really require capital.Value often performs best coming out of a recession, and for that reason everyone wants to know when will Buffett start deploying Berkshire's 128 billion dollar cash position.Charlie Munger told The Wall Street Journal last month that Berkshire would likely close some of its smaller holdings as a result of the pandemic but didn’t specify which specific businesses would be affected. Investors are eager to find out.Berkshire sold off sizeable stakes in Delta Air Lines and Southwest Airlines as the coronavirus battered the travel industry.Buffett has stated that he constantly seeks to buy businesses that meet three criteria. 1. First, they must earn good returns on the net tangible capital required in their operation.2. Second, they must be run by able and honest managers. 3. Finally, they must be available at a sensible price.When Warren Buffett, the Oracle of Omaha speaks, investors from around the world listen. If Warren Buffett has any words of comfort or warning for stock-market investors, they will hear them later today.The Berkshire Hathaway Annual Meeting which last year drew over 40,000 attendees will be streamed live online at 3PM central time.Buy Patrick's Book Here: https://amzn.to/2J2kF3AVisit our website: http://onfinance.orgFollow Patrick on Twitter Here: https://twitter.com/PatrickEBoylePatreon Page: https://www.patreon.com/PatrickBoyleOnFinance Learn more about your ad choices. Visit megaphone.fm/adchoices

Learn more about your ad choices. Visit megaphone.fm/adchoices

Get an exclusive 15% discount on Saily data plans! Use code BOYLE at checkout. Download Saily app or go to https://saily.com/boyleThis week, SpaceX filed the prospectus for what is expected to be the largest IPO in history. The document is extraordinary — part financial disclosure, part science fiction, and part governance structure that a corporate law professor has described as offering shareholders "no votes, no sales, and no suits." We look at the numbers, the products that don't yet exist, the AI business that SpaceX's own engineers won't use, the related-party transactions, the compensation package tied to a Mars colony the company admits is "improbable," and the one rocket that everything depends on. Everything I am about to tell you comes directly from the filing.Cape Fear Advisors Substack: https://capefearadvisors.substack.com/p/spacex-adding-it-up-the-235-billionPatrick's Books:Statistics For The Trading Floor: https://amzn.to/3eerLA0Derivatives For The Trading Floor: https://amzn.to/3cjsyPFCorporate Finance: https://amzn.to/3fn3rvC Ways To Support The ChannelPatreon: https://www.patreon.com/PatrickBoyleOnFinanceBuy Me a Coffee: https://www.buymeacoffee.com/patrickboyleVisit our website: https://www.onfinance.orgFollow Patrick on Twitter Here: https://bsky.app/profile/pboyle.bsky.socialBusiness Inquiries ➡️ [email protected] Boyle On Finance Podcast:Spotify: https://open.spotify.com/show/7uhrWlDvxzy9hLoW0EYf0bApple: https://podcasts.apple.com/us/podcast/patrick-boyle-on-finance/id1547740313Google Podcasts: https://tinyurl.com/62862nveJoin this channel to support making this content:https://www.youtube.com/channel/UCASM0cgfkJxQ1ICmRilfHLw/join Learn more about your ad choices. Visit megaphone.fm/adchoices

Learn more about your ad choices. Visit megaphone.fm/adchoices

Learn more about your ad choices. Visit megaphone.fm/adchoices

These classes are all based on the book Trading and Pricing Financial Derivatives, available on Amazon at this link. https://amzn.to/2WIoAL0 Check out our website http://www.onfinance.org/Follow Patrick on twitter here: https://twitter.com/PatrickEBoyleIf you're an options investor, you may have heard about "Greeks" but you may not know exactly what they are or what they can do for you. If so, watch this series of videos where Patrick Boyle explains what these Greek letters mean and how to use them to better understand the price of an option.What can option Greeks do for you?Using the Greeks, an options investor can make more informed decisions about which options to trade, and when to trade them. Consider some of the things Greeks may help you do:Gauge the likelihood that an option you're considering will expire in the money (Delta).Estimate how much the Delta will change when the stock price changes (Gamma).Get a feel for how much value your option might lose each day as it approaches expiration (Theta).Understand how sensitive an option might be to large price swings in the underlying stock (Vega).Simulate the effect of interest rate changes on an option (Rho).What are Greeks anyway?Greeks, including Delta, Gamma, Theta, Vega and Rho, measure the different factors that affect the price of an option contract. They are calculated using a theoretical options pricing model (see How much is an option worth?).Since there are a variety of market factors that can affect the price of an option in some way, assuming all other factors remain unchanged, we can use these pricing models to calculate the Greeks and determine the impact of each factor when its value changes. For example, if we know that an option typically moves less than the underlying stock, we can use Delta to determine how much it is expected to move when the stock moves $1. If we know that an option loses value over time, we can use Theta to approximate how much value it loses each day.what is delta gamma theta vega in options Learn more about your ad choices. Visit megaphone.fm/adchoices

Today we will learn about put call parity and how it works,These classes are all based on the book Trading and Pricing Financial Derivatives, available on Amazon at this link. https://amzn.to/2WIoAL0 Check out our website http://www.onfinance.org/Follow Patrick on twitter here: https://twitter.com/PatrickEBoyleWhat is Put-Call ParityPut-call parity is a no arbitrage principle that specifies the relationship between the price of European put options and European call options, with the same underlying asset, strike price and expiration date. Put-call parity states that simultaneously holding a short European put and long European call of the same class will deliver the same return as holding one forward (or futures) contract on the same underlying asset, with the same expiration, and a forward price equal to the option's strike price. If the prices of the put and call options diverge so that this relationship does not hold, an arbitrage opportunity would exist, meaning that arbitrage traders would be able to earn a risk-free profit. Such opportunities are uncommon and short-lived in liquid markets.The equation expressing put-call parity is:C + PV(x) = P + Swhere:C = price of the European call optionPV(x) = the present value of the strike price (x), discounted from the value on the expiration date at the risk-free rateP = price of the European putS = spot price or the current market value of the underlying assetPut-call parity applies only to European options, which can only be exercised on the expiration date, and not American options, which can be exercised before. Watch Patrick's other videos on covered calls and protective puts to better understand this concept.Covered Call Video: https://www.youtube.com/watch?v=UlC9iM2Wh7IProtective Put Video: https://www.youtube.com/watch?v=MUs4jga-NAI&t=26sWhat is Put Call Parity? How does it work? put call parity formula Learn more about your ad choices. Visit megaphone.fm/adchoices

Learn more about your ad choices. Visit megaphone.fm/adchoices

Learn more about your ad choices. Visit megaphone.fm/adchoices

In todays video we will learn about forward interest rates and a derivative called a forward rate agreement or FRA.These classes are all based on the book Trading and Pricing Financial Derivatives, available on Amazon at this link. https://amzn.to/2WIoAL0 Check out our website http://www.onfinance.org/Follow Patrick on twitter here: https://twitter.com/PatrickEBoyleWhat are Forward Rates?A forward rate is an interest rate implied for periods of time in the future by zero-coupon bonds. For example, the market implied yield on a three-month Treasury bill three months from now is a forward rate.If we know what the three-month zero-coupon Treasury bill rate is and what the six-month zero-coupon Treasury bill rate is, we can back out what the market is implying as the yield on a three-month Treasury bill three months from now.To calculate forward rates we just need the zero-coupon yield curve.What are Forward Rate Agreements?A forward rate agreement (FRA) is an over-the-counter agreement to borrow a fixed amount of money at a fixed interest rate at a specified future time period.Banks and large corporations can use FRAs to hedge future interest rate exposures. The buyer hedges against the risk of rising interest rates, while the seller hedges against the risk of falling interest rates. Speculators can use FRAs to make bets on future changes in interest rates.Rates in the future will usually be different from the implied rate at the time you entered into a forward-rate-agreement, giving rise to gains or losses on the agreed transaction.What is an FRA?An FRA is an abbreviated term for Forward Rate Agreement Learn more about your ad choices. Visit megaphone.fm/adchoices