Binary Options

Оглавление

Hamish Raw. Binary Options

Publishing details

Acknowledgements

Introduction. Overview

Distribution

1 Risk Management

2 Clearing and Settlement

3 Regulation

Leverage

Dexterity

Product Sets

Summary

Section I

1. Upbets & Downbets. 1.0 Introduction

1.1 Upbet Specification

Figure 1.1.1

1.2 Upbet Pricing

Figure 1.2.1

1.3 Upbet Profit & Loss Profiles

Figure 1.3.1

Figure 1.3.2

1.4 Downbet Specification

Figure 1.4.1

1.5 Downbet Pricing

Figure 1.5.1

1.6 Downbet Profit & Loss Profiles

Figure 1.6.1

Figure 1.6.2. 1.7 Up/Downbets v Conventional Calls/Puts

Upbets v Calls

Figure 1.7.1

Figure 1.7.2

Downbets v Puts

Figure 1.7.3

Figure 1.7.4

1.8 Formulae

1.9 Summary

1.10 Exercises

1.11 Answers

2. Theta & Time Decay. 2.0 Introduction

2.1 Upbets v the Underlying over Time

Figure 2.1.1. 2.2 Price Decay and Theta

Figure 2.2.1

Figure 2.2.2

Table 2.2.1

2.3 Upbet Theta

Table 2.3.1

Figure 2.3.1

2.4 Downbets over Time

Figure 2.4.1. 2.5 Downbet Theta

Table 2.5.1

Figure 2.5.1. 2.6 Theta and Extreme Time

Figure 2.6.1

2.7 Bets v Conventionals

Figure 2.7.1

2.8 Formulae

2.9 Summary

2.10 Exercises

2.11 Answers

3. Vega & Volatility. 3.0 Introduction

3.1 Normal Distribution

Figure 3.1.1

Figure 3.1.2

3.2 Lognormal Distribution

Figure 3.2.1. 3.3 Historic Volatility & Implied Volatility

Historic Volatility

Implied Volatility

Historic v Implied Volatility

3.4 Upbets v the Underlying as a function of Volatility

Figure 3.4.1

3.5 Vega and the Impact of Volatility

Figure 3.5.1

Table 3.5.1

3.6 Upbet Vega

Table 3.6.1

Figure 3.6.1

3.7 Downbets & Volatility

Figure 3.7.1

3.8 Downbet Vega

Figure 3.8.1

3.9 Vega & Extreme Implied Volatility

Figure 3.9.1

Figure 3.9.2

3.10 Bets v Conventionals

Figure 3.10.1

3.11 Formulae

3.12 Summary

3.13 Exercises

3.14 Answers

4. Delta & Underlying. 4.0 Introduction

4.1 Deltas and the Gradient of the Price Profile

Figure 4.1.1

Table 4.1.1

4.2 Upbet Deltas

Figure 4.2.1

Figure 4.2.2

Table 4.2.1

4.3 Downbet Deltas

Figure 4.3.1

Table 4.3.1

Figure 4.3.2

4.4 Bets v Conventionals

Figure 4.4.1

4.5 Formulae

4.6 Summary

4.7 Exercises

4.8 Answers

5. Gamma & Delta. 5.0 Introduction

5.1 Gamma and the Gradient of the Delta

Figure 5.1.1

Table 5.1.1

5.2 Upbet Gamma

Figure 5.2.1

Figure 5.2.2. 5.3 Downbet Gamma

Figure 5.3.1

Table 5.3.1

Figure 5.3.2. 5.4 Bets v Conventionals

Figure 5.4.1

5.5 Formulae

5.6 Summary

5.7 Exercises

5.8 Answers

Section II

6. Rangebets. 6.0 Introduction

6.1 Price Specification

Figure 6.1.1. 6.2 Rangebet Pricing

Example 6.2.1

Figure 6.2.1

Example 6.2.2

6.3 Rangebet Profit & Loss Profiles

Figure 6.3.1

Figure 6.3.2. 6.4 Rangebets v Conventional Strangles

Figure 6.4.1

6.5 Rangebet Sensitivity Analysis

6.6 Rangebet and Theta

Figure 6.6.1

Figure 6.6.2

Figure 6.6.3

Figure 6.6.4

6.7 Rangebets and Vega

Figure 6.7.1

Figure 6.7.2

Figure 6.7.3

Figure 6.7.4. 6.8 Rangebets and Delta

Figure 6.8.1

Figure 6.8.2

6.9 Rangebets and Gamma

Figure 6.9.1

Figure 6.9.2

6.10 Summary

6.11 Exercises

6.12 Answers

7. EachWayBets. 7.0 Introduction

7.1 Price Specificaton

Figure 7.1.1

7.2 Eachwaybet Pricing

Figure 7.2.1

7.3 Eachwaybet Profit & Loss Profiles

Figure 7.3.1

Figure 7.3.2

7.4 Eachwaybets and Conventional Combos

Figure 7.4.1

7.5 Eachway Upbets and Eachway Downbets

Figure 7.5.1

7.6 Eachwaybet Sensitivity Analysis

7.7 Eachwaybet and Theta

Figure 7.7.1

Figure 7.7.2

Figure 7.7.3

Figure 7.7.4. 7.8 Eachwaybet and Vega

Figure 7.8.1

Figure 7.8.2

Figure 7.8.3

Figure 7.8.4. 7.9 Eachwaybets and Delta

Figure 7.9.1

Figure 7.9.2. 7.10 Eachwaybets and Gamma

Figure 7.10.1

Figure 7.10.2. 7.11 25:10:0 Spreadbets

25:10:0 Pricing

Figure 7.11.1. 25:10:0 Deltas

Figure 7.11.2

25:10:0 Gammas

Figure 7.11.3. 25:10:0 Theta

Figure 7.11.4. 25:10:0 Vega

Figure 7.11.5. 7.12 Summary

7.13 Exercises

7.14 Answers

8. Eachway Rangebets. 8.0 Introduction

8.1 Price Specification

Figure 8.1.1

8.2 Eachway Rangebet Pricing

Figure 8.2.1

Example 8.2.1

8.3 Eachway Rangebet Profit & Loss Profiles

Figure 8.3.1

Figure 8.3.2. 8.4 Eachway Rangebet Sensitivity Analysis

8.5 Eachway Rangebet and Theta

Figure 8.5.1

Figure 8.5.2

8.6 Eachway Rangebets and Vega

Figure 8.6.1

Figure 8.6.2

Figure 8.6.3

8.7 Eachway Rangebets and Delta

Figure 8.7.1

Figure 8.7.2. 8.8 Eachway Rangebets and Gamma

Figure 8.8.1

Figure 8.8.2. 8.9 Summary

8.10 Exercises

Section III

9. Trading Binaries. 9.0 Introduction

9.1 Directional Trading

Table 9.1.1

9.1.1 The Choice of Strike

Table 9.1.2

Figure 9.1.1

Figure 9.1.2

Table 9.1.3

Table 9.1.4

Figure 9.1.3

Table 9.1.5

9.1.2 The Choice of Expiry

Figure 9.1.4

Table 9.1.6

9.2 Trading Volatility

9.2.1 Implied Volatility v Historic Volatility

Figure 9.2.1

Table 9.2.1

9.2.2 External Factors & Implied Volatility

9.2.3 Bets v Bets (of same series)

Figure 9.2.2

Figure 9.2.3

Figure 9.2.4

9.3 Selling Time

9.4 Summary

9.5 Exercises

9.6 Answers

10. Hedging Binaries. 10.0 Introduction

10.1 Binaries as Call Spreads

10.1.1 The Binary as a Conventional Call Spread

Figure 10.1.1

Figure 10.1.2

Figure 10.1.3

Figure 10.1.4

Figure 10.1.5

10.2 Hedging with the Underlying. 10.2.1 Introduction

10.2.2 The Upbet v the Underlying

Figure 10.2.1

10.2.3 The Downbet v the Underlying

Figure 10.2.2

10.2.4 The Rangebet v the Underlying

Figure 10.2.3. 10.2.5 Summary

10.3 Bets & Conventionals

10.3.1 Hedging with Conventional Calls

Figure 10.3.1a

Figure 10.3.1b

Figure 10.3.2a

Figure 10.3.2b

Figure 10.3.3a

Figure 10.3.3b

Figure 10.3.4a

Figure 10.3.4b

10.3.2 Hedging with Puts

10.3.3 Hedging Rangebets with Strangles

Figure 10.3.5a

Figure 10.3.5b

Figure 10.3.6a

Figure 10.3.6b

Figure 10.3.7a

Figure 10.3.7b

Figure 10.3.8a

Figure 10.3.8b

10.3.4 Summary

10.4 Hedging Bets with Bets

10.4.1 Long Upbet Hedged with Short Upbet

10.4.2 Short Rangebet Hedged with Long Rangebet

10.5 Summary

10.6 Exercises

10.7 Answers

Section IV

11. One-Touch UpBets & DownBets. 11.0 Introduction

11.1 One-Touch Upbet Specification

Figure 11.1.1

11.2 One-Touch Upbet Pricing

Figure 11.2.1

11.3 One-Touch Upbet Profit & Loss Profiles

Figure 11.3.1

Figure 11.3.2

11.4 One-Touch Downbet Specification

Figure 11.4.1

11.5 One-Touch Downbet Pricing

Figure 11.5.1

11.6 One-Touch Downbet Profit & Loss Profiles

Figure 11.6.1

Figure 11.7.1

Figure 11.7.2

Table 11.7.1

Table 11.7.2

Figure 11.7.3

11.8 One-Touch Downbet Theta q & Time

Figure 11.8.1

Figure 11.8.2

11.9 Extreme Time & One-Touch Theta q

Figure 11.9.1

11.10 One-Touch Upbet Vega

Figure 11.10.1

Figure 11.10.2

Table 11.10.1

11.11 One-Touch Downbet Vega

Figure 11.11.1

Figure 11.11.2

Table 11.11.1. 11.12 One-Touch Upbet Delta

Fig 11.12.1

Figure 11.12.2

Table 11.12.1. 11.13 One-Touch Downbet Deltas

Figure 11.13.1

Figure 11.13.2. 11.14 One-Touch Upbet Gamma

Figure 11.14.1

Figure 11.14.2. 11.15 One-Touch Downbet Gamma

Figure 11.15.1

Figure 11.15.2. 11.16 Formulae

11.17 Finite Difference & Greeks

Theta

Vega

Delta

Gamma

11.18 Summary

11.19 Exercises

11.20 Answers

12. No-Touch Rangebets. 12.0 Introduction

12.1 Specification

Figure 12.1.1: No-Touch Rangebet

12.2 No-Touch Rangebet Pricing

Figure 12.2.1

Figure 12.2.2

12.3 No-Touch Rangebet Theta

Figure 12.3.1

Figure 12.3.2

Figure 12.3.3

Table 12.3.1

12.4 No-Touch Rangebet Vega

Figure 12.4.1

Figure 12.4.2. 12.5 No-Touch Rangebet Delta

Figure 12.5.1

Figure 12.5.2

12.6 No-Touch Rangebet Gamma

Figure 12.6.1

12.7 Formulae

12.8 VBA Code

12.9 Summary

12.10 Exercises

12.11 Answers

13. Trading & Hedging ‘One-Touch’ Bets. 13.0 Introduction

13.1 Punting with One-Touch/No-Touch Bets

13.2 One-Touch v Regular Arbitrage

Example 13.2.1

Figure 13.2.1

Example 13.2.2

Figure 13.2.2

13.3 One-Touch v Conventional Options

Figure 13.3.1

Figure 13.3.2

13.4 One-Touch v Underlying

Figure 13.4.1

Figure 13.4.2

Figure 13.4.3

Figure 13.4.4

Figure 13.4.5

13.5 Summary

13.6 Exercises

13.7 Answers

Bibliography

About this eBook

Отрывок из книги

To Professor Desmond Fitzgerald for introducing an itinerant truck driver to options theory. To Mark Levy and Danny Smyth, two of the slowest option pit traders I have ever had the pleasure of trading against, for reading through the manuscript and checking for glaring errors. To Stephen Eckett of Harriman House for direction. And finally to Cameron, Roxanna and Gabriella for persistently badgering their dad to finish the book.

Binary options (aka financial fixed odds bets, aka binary bets) have a number of characteristics which will enable them to become the most heavily used and popular derivatives instrument. They provide:

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Trader A and Trader B now decide to trade a downbet with each other. Trader A is no longer feeling bullish and wishes to buy a downbet (Fig 1.6.1) and since Trader B has conveniently turned bullish, he sells it to him. This is not an aggressive trade that Trader A is putting on; since the strike price is $101 and the underlying is $100 therefore the downbet is already $1 in-the-money and has a better than an ‘evens money’ chance of winning. The price of his downbet has to reflect this probability and the price is agreed at 60, where they trade for $1/pt.

Trader A’s maximum loss since he bought the downbet is 60 ¥ $1 = $60, and this he will have to bear if the share price rises by over $1 from its current level of $100. His maximum potential winnings have been reduced to $40, which he will receive if the underlying either falls, stays where it is at $100, or rises less then $1. In other words Trader A has backed an ‘odds-on’ bet.

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