Explain to me how Oanda's "box options" are not a giant ripoff

Discussion in 'Forex' started by 1a2b3cppp, Mar 10, 2011.

  1. The "hit" and "miss" prices are often very similar.

    If you try to create a straddle-type of situation, you won't get paid enough from the winner to make back your cost.

    I don't see a way to possibly hedge anything with these.

    Is my data just goofy cuz I'm on a demo account? Or are they really heavily weighted in favor of Oanda?
  2. Why would you expect a straddle with forex box options to be priced any differently than an option straddle on stocks?

    In both cases the instruments have the anticipated future volatility priced in. If the anticipated move occurs, you might break even but no better.
  3. Maverick74


    Dude, you need to study up on options and pricing. A two sided box is NOT the same thing as an ATM straddle in terms of payoff and risk. LOL. If they were I would be all over that shit like white on rice.
  4. I guess I don't understand how box options are supposed to be used.

    I at least understand options theoretically. Seems like with these box options, however, the payoff is never worth the risk.
  5. Maverick74


    The risk? You have a limited risk proposition. I would look to buy boxes with at least 3 to 1 payoffs. Maybe even throw some lottery plays out there. I can't remember how far out they let you go in time and price. But currencies spike all the time. I would want to collect the payouts on those spikes. Look, it's not free money. But the last time I looked at their prices, they seemed fair. Maybe a 5% vig to the house. Ask atty, he trades them I believe.

  6. Did you look on a demo or real account? Around a year ago, on the demo, I thought the prices were a slight vig to the house which could be overcome with good trades. Then, on the live account, the pricing was totally different and struck me as completely impossible to overcome, in the ballpark of a 40% vig.
  7. Maverick74


    It was a real account. The vig is not that high. Look, a touch is much more expensive then a vanilla option. That's the first point to understand. When volatility increases it has an exponential effect on pricing, the relationship is not linear. So the higher the implied vol, the touch becomes dramatically more expensive. So if you were using vanilla options to make a comparison to calculate the vig, they are not going to be remotely close. The closer vol is to zero, the closer the relationship between the vanilla and the exotic. The higher the vol, the wider apart they will be and exponentially so.
  8. Maverick74


    Let me add another thing, there is an art to building those boxes. It actually took me a long time to learn how to do it correctly. Again, atticus can tell you how he does them. You might accidentally be making them too big which has a huge effect on the pricing. It was a night and day difference for me when I finally got it right.
  9. are you saying if you're making a horizontal box to make it as short (height) as possible because if price is going to touch, say, 100 from below, it doesn't matter if the box goes from 100 to 150 or from 100 to 110 because it's still going to touch at 100?

    Unless it's gonna go way above and then drop in from above, in which case height might matter.
  10. It doesn't if inception = present time.

    #10     Mar 10, 2011