Discussion in 'Trading' started by mgabriel01, Jan 14, 2008.
I calculated 57.43%. but I am sleepy this morning...
just check where a one-day touch option with strike equal to last friday's close trades. The price expressed as a % of a 100% equals the probability of filling this gap.
(learn something new every day!)
Whats a 1 day touch option?
a one touch option will pay 100% of a specified notional if at any time during the day we hit 1405 on the cash.
the price of such an option maybe quoted 57% - 62% meaning that you can buy this option for 62% of the specified notional or you can sell it for 57%.
Let's say you believe we will fill the gap and are willing to bet around $6,000 (these options are also called American bets).
You can go and pay $6,200 for this option. If we hit 1405, the option is extinguished and you earn $10,000 minus $6,200 so $3,800.
It also means that the probability we will hit 1405 on the cash is around 60%.
hope this helps
Yes it does
thanks for the insight!
Thanks for the definition, Alexandre. Where do you find the quotes for one-touch options?
I believe you can get quotes from igindex.co.uk and clickoptions.com but you may need an account. I'm not affiliated or have an account with any of the above.
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