Calling Binary Bet companies -please...

Fantasy Trader

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...will somebody offer proper binaries (ideally inc hourlies or even 20s/30s) on Gold (futures or spot)?

Planning to offer a couple of 'grown up' accounts the way of the first one of you that obliges.


:cool:

Thanks in advance. :cheesy:
 
I would like to see this as well but it is hard for them to offer because of gold's high second order volatility making vol projection methods difficult. This, combined with the difficulty of procuring reliable short term implied vols to calibrate an intra-day vol surface make intra-day gold exotics hard to price. It could be done but expect some large spreads.
 
NotQuiteRandom said:
I would like to see this as well but it is hard for them to offer because of gold's high second order volatility making vol projection methods difficult. This, combined with the difficulty of procuring reliable short term implied vols to calibrate an intra-day vol surface make intra-day gold exotics hard to price. It could be done but expect some large spreads.

How would you imply a surface for Gold digitals? How would you do it for any digital? They don't trade in the market (well they do OTC but their duration is >= 1 day) so how are you going to imply a vol for smaller durations?? Where does implied vol come into this, one wouldn't use implied vol!!!!
 
How do you price any exotic? Off the vanilla vol surface. I was not suggesting, as you imply, that they are priced off some exotic surface.

If you want to price a short term gold binary you need a good gold vanilla surface but the only liquid surfaces available intraday at all times (i.e not on exchange traded option expiry days) are those for FX in the inter-bank market.

I do not understand your point. Are you saying that a binary is priced without reference to implied vol? Please expound.

Thanks,

NQR
 
NotQuiteRandom said:
How do you price any exotic? Off the vanilla vol surface. I was not suggesting, as you imply, that they are priced off some exotic surface.

If you want to price a short term gold binary you need a good gold vanilla surface but the only liquid surfaces available intraday at all times (i.e not on exchange traded option expiry days) are those for FX in the inter-bank market.

I do not understand your point. Are you saying that a binary is priced without reference to implied vol? Please expound.

Thanks,

NQR

How are you going to a use implied vol for say FTSE bianrise from a 1m surface to price a 1 day binary? Yeah you could extrapolate from the 1M to the daily but there would be a large error attached....
Aggreed with the FX but relate that back to FTSE, DOW, Gold etc that is out there by the bin bet providers?!?!?!
 
There are 3 ways in which it is done in practice:

1) Extrapolation (as you suggest) using a model which factors in 'expected' deviation from vols at t+n based on the normal range of slope between t1 and t2 where t1 is the closest expiry and t2 the next. This may include historical slopes at times when t1 was close to t0 in the expiry cycle. As, in practice, it is always positive this can be done. Simulations which I ran a few years ago showed a low mean error if the slope used in the extrapolation was adjusted dynamically. I wouldn't use this model exclusively in practice though as one could get badly hurt when vol shoots up (or down).

2) Supply and demand. If you generated enough orders on a binary contract you could run it like any other supply / demand driven market matching buyers with sellers and taking some spread. If you did this you wouldn't need an implied vol (though in this instance you could extrapolate one from the prices on the book if you were interested).

3) OTC exotics are aggregated and reported by some parties to aggregation agents like 'Super Derivatives'. I haven't used their service for some time but used to see short term index exotics go through often enough to interpolate a reasonable surface.

In practice I would prefer to use a multi-factor model combining 2 and 3 but if I didn't have 3 I would first elect to use 2 if I had that much liquidity or a combination of 1 and 2 if 3 was unavailable and the liquidity on 2 was not as deep as I would like.

The problem with intraday gold binarys is that you are less likely to get 2 (Gold is traded less by the retail public than the major indices and fx), you probably won't get enough for gold on 3 and 1 has the problems stated.

Intraday implied vol for gold is therefore harder to estimate reasonably than for the more liquid assets on which binary options are sold to the retail masses.

If you have any suggestions on ideas that one might add to 1, 2 and 3 or combine therewith please do let me know.


NQR
 
NotQuiteRandom said:
There are 3 ways in which it is done in practice:

1) Extrapolation (as you suggest) using a model which factors in 'expected' deviation from vols at t+n based on the normal range of slope between t1 and t2 where t1 is the closest expiry and t2 the next. This may include historical slopes at times when t1 was close to t0 in the expiry cycle. As, in practice, it is always positive this can be done. Simulations which I ran a few years ago showed a low mean error if the slope used in the extrapolation was adjusted dynamically. I wouldn't use this model exclusively in practice though as one could get badly hurt when vol shoots up (or down).

2) Supply and demand. If you generated enough orders on a binary contract you could run it like any other supply / demand driven market matching buyers with sellers and taking some spread. If you did this you wouldn't need an implied vol (though in this instance you could extrapolate one from the prices on the book if you were interested).

3) OTC exotics are aggregated and reported by some parties to aggregation agents like 'Super Derivatives'. I haven't used their service for some time but used to see short term index exotics go through often enough to interpolate a reasonable surface.

In practice I would prefer to use a multi-factor model combining 2 and 3 but if I didn't have 3 I would first elect to use 2 if I had that much liquidity or a combination of 1 and 2 if 3 was unavailable and the liquidity on 2 was not as deep as I would like.

The problem with intraday gold binarys is that you are less likely to get 2 (Gold is traded less by the retail public than the major indices and fx), you probably won't get enough for gold on 3 and 1 has the problems stated.

Intraday implied vol for gold is therefore harder to estimate reasonably than for the more liquid assets on which binary options are sold to the retail masses.

If you have any suggestions on ideas that one might add to 1, 2 and 3 or combine therewith please do let me know.


NQR

1) It's a method, but the vols it generates are too high and wouldn't be used for binary trading as the vol sellers will be all over it. When yuo put that down to the 5min area the vols are really high and do not represent what is really happening.
2) Depends on the company

Paul
 
Hi,

I am confident that 1) can adjust for that. I looked for the model I ran on this but can't find it and am not doing it again several years on.

2) I guess that IG could do this. They don't hedge their binary bets according to their annual report and they get some good flow coming through, as evidenced by their annual number of transactions (given in report) and the limited number of strikes and tenors offered. The smaller vendors wouldn't be able to do this though.

What do you trade?

NQR
 
NotQuiteRandom said:
Hi,

I am confident that 1) can adjust for that. I looked for the model I ran on this but can't find it and am not doing it again several years on.

2) I guess that IG could do this. They don't hedge their binary bets according to their annual report and they get some good flow coming through, as evidenced by their annual number of transactions (given in report) and the limited number of strikes and tenors offered. The smaller vendors wouldn't be able to do this though.

What do you trade?

NQR

1) It can be done, but the adjustment doesn't warrant creating the model (IMHO)

2) yeah exactly....

This and that, don't really choose to disclose on here, but you are welcome to message me on here to discuss futher....
 
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