Binary Options

I was just wondering if anyone here trades the binary options on the S&P or VIX. They ticker for the S&P is the BSZ and the VIX is BVZ. They dont seem to trade very much or are very liquid, just not very popular right now with everyone because they are so new. I was just wondering if anyone has tried them out or not.

 

I have looked at them but they require a total reprogramming of your thinking. Because they either are worth 100$ per contract or nothing at all, the price relationship is all screwed up.

Lets say S&P is 1000 and you have a call with a strike of 990 then the intrinsic value is 100$ (not 10$) and how the hell do you price time decay in a case like this?

 

I'd say the binaries are a lot more straightforward than regular options, when it comes to pricing. The price is just a simple probability.

 

I have notice that some have OI but not very much volume at all. Alot don't even trade or have any OI. It is a good idea, just have not became very popular with everyone.

 

This month's TASC has an article on Binary Options thats pretty interesting. I haven't read through it all, but check it out at your local bookstore...

Basically it sounds like a good tool for those who need risk management .... and traders with small accounts (so you don't blow out your FX account)

They use an FX account example throughout that was well written. Worth looking into.

 

I don't know why anyone would trade the binary's when you can just trade a vertical spread and trade where there is tons of volume.

 

unless the vertical spread can be done at one strike, its different than a binary

 

True in terms of payoff, but in terms of probability, they should be the same, assuming some days before expiration, no?

 

There are various discussions in quant books.

 

Well. The win/loss relationship is symmetric, a fixed 1:1 risk/reward ratio. Most people prefer to have a larger win payout than the loss part, for example 1:2 or higher.