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Binary Options: Fixed Odds Financial Bets

Book Description

Binary options are the latest products to hit financial markets. From 5 minute FTSE100 bets offered by online bookmakers, longer duration FTSE100 bets traded on online betting exchanges plus binary bets offered by spreadbetting companies, all are offering the same instrument as the CBOT's binary option on the Fed Funds rate. Hitherto, the largest single marketplace for binary options has been Lloyd's of London where they are known as insurance contracts, while the sports enthusiast is unwittingly buying a binary option every time he takes a price from a sportsbook or bookmaker on this horse or that soccer team. This book takes the same fixed odds bet and illustrates how they operate in the financial marketplace."Binary Options" initially outlines regular bets and explains the rationale defining some basic winning and losing bets. A deeper analysis follows in which the author examines how the value of a bet is dependant on the passing of time, the volatility of the underlying instrument plus the price of the underlying instrument. More advanced bets are introduced with the reader then being shown when and how to profitably use binaries in various market conditions, followed by techniques in how to hedge the position entered into. The same format for regular bets is then followed when discussing one-touch bets. In this first in-depth analysis of binary options, Hamish Raw has ambitiously catered for both the end-user and the market-maker. Diagrams are to be found in abundance throughout this book in order to graphically illustrate the author's points.

Table of Contents

  1. Cover
  2. Publishing details
  3. Acknowledgements
  4. Introduction
    1. Overview
    2. Distribution
    3. Leverage
    4. Dexterity
    5. Product Sets
    6. Summary
  5. Section I
    1. 1. Upbets & Downbets
      1. 1.0 Introduction
      2. 1.1 Upbet Specification
      3. 1.2 Upbet Pricing
      4. 1.3 Upbet Profit & Loss Profiles
      5. 1.4 Downbet Specification
      6. 1.5 Downbet Pricing
      7. 1.6 Downbet Profit & Loss Profiles
      8. 1.7 Up/Downbets v Conventional Calls/Puts
      9. 1.8 Formulae
      10. 1.9 Summary
      11. 1.10 Exercises
      12. 1.11 Answers
    2. 2. Theta & Time Decay
      1. 2.0 Introduction
      2. 2.1 Upbets v the Underlying over Time
      3. 2.2 Price Decay and Theta
      4. 2.3 Upbet Theta
      5. 2.4 Downbets over Time
      6. 2.5 Downbet Theta
      7. 2.6 Theta and Extreme Time
      8. 2.7 Bets v Conventionals
      9. 2.8 Formulae
      10. 2.9 Summary
      11. 2.10 Exercises
      12. 2.11 Answers
    3. 3. Vega & Volatility
      1. 3.0 Introduction
      2. 3.1 Normal Distribution
      3. 3.2 Lognormal Distribution
      4. 3.3 Historic Volatility & Implied Volatility
      5. 3.4 Upbets v the Underlying as a function of Volatility
      6. 3.5 Vega and the Impact of Volatility
      7. 3.6 Upbet Vega
      8. 3.7 Downbets & Volatility
      9. 3.8 Downbet Vega
      10. 3.9 Vega & Extreme Implied Volatility
      11. 3.10 Bets v Conventionals
      12. 3.11 Formulae
      13. 3.12 Summary
      14. 3.13 Exercises
      15. 3.14 Answers
    4. 4. Delta & Underlying
      1. 4.0 Introduction
      2. 4.1 Deltas and the Gradient of the Price Profile
      3. 4.2 Upbet Deltas
      4. 4.3 Downbet Deltas
      5. 4.4 Bets v Conventionals
      6. 4.5 Formulae
      7. 4.6 Summary
      8. 4.7 Exercises
      9. 4.8 Answers
    5. 5. Gamma & Delta
      1. 5.0 Introduction
      2. 5.1 Gamma and the Gradient of the Delta
      3. 5.2 Upbet Gamma
      4. 5.3 Downbet Gamma
      5. 5.4 Bets v Conventionals
      6. 5.5 Formulae
      7. 5.6 Summary
      8. 5.7 Exercises
      9. 5.8 Answers
  6. Section II
    1. 6. Rangebets
      1. 6.0 Introduction
      2. 6.1 Price Specification
      3. 6.2 Rangebet Pricing
      4. Example 6.2.2
      5. 6.3 Rangebet Profit & Loss Profiles
      6. 6.4 Rangebets v Conventional Strangles
      7. 6.5 Rangebet Sensitivity Analysis
      8. 6.6 Rangebet and Theta
      9. 6.7 Rangebets and Vega
      10. 6.8 Rangebets and Delta
      11. 6.9 Rangebets and Gamma
      12. 6.10 Summary
      13. 6.11 Exercises
      14. 6.12 Answers
    2. 7. EachWayBets
      1. 7.0 Introduction
      2. 7.1 Price Specificaton
      3. 7.2 Eachwaybet Pricing
      4. 7.3 Eachwaybet Profit & Loss Profiles
      5. 7.4 Eachwaybets and Conventional Combos
      6. 7.5 Eachway Upbets and Eachway Downbets
      7. 7.6 Eachwaybet Sensitivity Analysis
      8. 7.7 Eachwaybet and Theta
      9. 7.8 Eachwaybet and Vega
      10. 7.9 Eachwaybets and Delta
      11. 7.10 Eachwaybets and Gamma
      12. 7.11 25:10:0 Spreadbets
      13. 7.12 Summary
      14. 7.13 Exercises
      15. 7.14 Answers
    3. 8. Eachway Rangebets
      1. 8.0 Introduction
      2. 8.1 Price Specification
      3. 8.2 Eachway Rangebet Pricing
      4. Example 8.2.1
      5. 8.3 Eachway Rangebet Profit & Loss Profiles
      6. 8.4 Eachway Rangebet Sensitivity Analysis
      7. 8.5 Eachway Rangebet and Theta
      8. 8.6 Eachway Rangebets and Vega
      9. 8.7 Eachway Rangebets and Delta
      10. 8.8 Eachway Rangebets and Gamma
      11. 8.9 Summary
      12. 8.10 Exercises
  7. Section III
    1. 9. Trading Binaries
      1. 9.0 Introduction
      2. 9.1 Directional Trading
      3. 9.2 Trading Volatility
      4. 9.3 Selling Time
      5. 9.4 Summary
      6. 9.5 Exercises
      7. 9.6 Answers
    2. 10. Hedging Binaries
      1. 10.0 Introduction
      2. 10.1 Binaries as Call Spreads
      3. 10.2 Hedging with the Underlying
      4. 10.3 Bets & Conventionals
      5. 10.3.2 Hedging with Puts
      6. 10.3.3 Hedging Rangebets with Strangles
      7. 10.4 Hedging Bets with Bets
      8. 10.5 Summary
      9. 10.6 Exercises
      10. 10.7 Answers
  8. Section IV
    1. 11. One-Touch UpBets & DownBets
      1. 11.0 Introduction
      2. 11.1 One-Touch Upbet Specification
      3. 11.2 One-Touch Upbet Pricing
      4. 11.3 One-Touch Upbet Profit & Loss Profiles
      5. 11.4 One-Touch Downbet Specification
      6. 11.5 One-Touch Downbet Pricing
      7. 11.6 One-Touch Downbet Profit & Loss Profiles
      8. 11.8 One-Touch Downbet Theta q & Time
      9. 11.9 Extreme Time & One-Touch Theta q
      10. 11.10 One-Touch Upbet Vega
      11. 11.11 One-Touch Downbet Vega
      12. 11.12 One-Touch Upbet Delta
      13. 11.13 One-Touch Downbet Deltas
      14. 11.14 One-Touch Upbet Gamma
      15. 11.15 One-Touch Downbet Gamma
      16. 11.16 Formulae
      17. 11.17 Finite Difference & Greeks
      18. 11.18 Summary
      19. 11.19 Exercises
      20. 11.20 Answers
    2. 12. No-Touch Rangebets
      1. 12.0 Introduction
      2. 12.1 Specification
      3. 12.2 No-Touch Rangebet Pricing
      4. 12.3 No-Touch Rangebet Theta
      5. 12.4 No-Touch Rangebet Vega
      6. 12.5 No-Touch Rangebet Delta
      7. 12.6 No-Touch Rangebet Gamma
      8. 12.7 Formulae
      9. 12.8 VBA Code
      10. 12.9 Summary
      11. 12.10 Exercises
      12. 12.11 Answers
    3. 13. Trading & Hedging ‘One-Touch’ Bets
      1. 13.0 Introduction
      2. 13.1 Punting with One-Touch/No-Touch Bets
      3. 13.2 One-Touch v Regular Arbitrage
      4. 13.3 One-Touch v Conventional Options
      5. 13.4 One-Touch v Underlying
      6. 13.5 Summary
      7. 13.6 Exercises
      8. 13.7 Answers
    4. Bibliography
  9. About this eBook