Derman.. ââ¬ÅIn physics there may one day be a Theory of Everything; in finance and the social sciences, youââ¬â¢re lucky if there is a usable theory of anything.ââ¬Â
I have found that studying binary options helps with american option constructs. Again there is a whole other language which can be confusing, consider that when you take a straight up bet for the Cubs to lose you are taking an all or none binary bet so its a simple construct. I would avoid binaries with any firm out of Cyprus.... http://en.wikipedia.org/wiki/Option_style
i only trade plain vanilla american options..... i like the convexity you can create with their payoff structure..
$6.03 last marked to mid/FV, gain of $0.44. $1.84 in extrinsic remains. Would look to cover on tomorrow on any SPX drop of 5 or more:
to me the binary pricing strips out alot of unnecessary inputs, if you price a very short term option with a binary the results are quite similar, I was responding to cd's post regarding vol. It is just an input albeit a very important one. I think people get lost studying the greeks, so you end up spending gobs of time on the inputs, to me its what's the position, what's the trade.
not to go off topic but in the straddles thread falcon thought because he had a winner on a long straddle, thought he had found the grail, he didn't understand his gain was simply due to an increase in vol/vega. I don't think alot of retail guys realize you can simply isolate vol thru a simple calculator. Its too bad binaries are either ponzi type click here firms or OTC with no real access to smaller players.
luck and randomness have so much to do with things its sick! thats why i always try to enable myself to have limited risk and unlimited reward through backspreads, and long vol trades...