BetaExoticBets

[NotQuiteRandom]

The issue of 'why' for the vol skew is much debated but, as you say, the empirical evidence is that it compensates for the high degree of second order volatility in asset markets. Before 1987 people were assuming a lognormal Black-Scholes framework.

I've been testing the BetaExoticBets.com/enter/ site out that T2W emailed earlier and trading lookbacks on there. Obviosly more (about double) the time premium to vanillas but you get the payoff which is the difference between the strike and the best price at expiry, not the spot price at expiry. Very cool!

I just reverse engineered their implied vols and found that they were only just above the market. On the FX ones they were less than half a point above.

Have you tried these?

NQR

 

[Profitaker]

NQR

What model do you use to price the lookbacks ? Are you saying they're inherently over-priced ? PM if you prefer.

 

[NotQuiteRandom]

I was reverse engineering the IV from the price using the Goldman, Sosin and Gatto, Garman formula and then iterating out the IV. What I am saying is that they were priced very close to fair value for an OTC offering. I am really pleased they have reached the retail market now.

Will be beta testing this thing until the cows come home. Just sent them their feedback form back and asked for more info on the cash prize (as I am first on the leaderboard).

 

[Profitaker]

NQR

Cheers. Would you mind posting a link to the betaexotics site please. TIA.

 

[NotQuiteRandom]

Sure:

www.betaexoticbets.com/enter/

To get in to the site (before you can open a beta account) you need a username and password. My username is better and password is makemoney. I'm not sure if every invitation had the same one or if they different but nothing said not to share it. I am sure they will be glad of more testers.

It is a beta thing and I don't think they take real accounts yet. I can't wait until they do though. This really is a cool way to trade. I have traded exotics at work before and binary stuff with IG but these guys have a huge range.

I've reported a few pricing bugs I found which I guess is why they want test people before they go live. See you on the leader board!

 

[Profitaker]

It is a beta thing and I don't think they take real accounts yet. I can't wait until they do though.

Ah, I see. Had thought for a moment it was open to retail

 

[NotQuiteRandom]

It is open for play money. They give you $10,000 virtual cash and you can trade a whole load of exotics from 10 minute expiry to 30 day.

I have focussed on the FX ones with shorter expiry (under an hour) and done well. I might as well see if I can win the cash prize for beta. I think it is a nuce chunk of change but am awaiting a reply on the size.

They have a great educational section explaining the payoffs.

Seems like the stock ones are longer term minimum, like 10 days.

Well worth a look IMHO, it really is very close to the real time exotic option dealing I have seen in the institutional market, but in small size.

Tell me you name on the leaderboard and we could get a little T2W competition going.

;-)

NQR

 

[Profitaker]

NQW - same as here

 

[NotQuiteRandom]

I think that these BetaExoticBets guys must either be running a matched book (unlikely as they are new) or operating a dynamic hedging / pricing algorithm.

I say this because some of the binary and time switch bets are cheaper than fair value. Assuming they are smart they must do these cheap bets to balance the book when they need the vega / gamma atc.

This could be the subject of a very interesting study - I am still ranked number 1 on the board. Thank God I have the week off!

NQR

 

[Profitaker]

I think that these BetaExoticBets guys must either be running a matched book (unlikely as they are new) or operating a dynamic hedging / pricing algorithm.

I say this because some of the binary and time switch bets are cheaper than fair value. Assuming they are smart they must do these cheap bets to balance the book when they need the vega / gamma atc.

This could be the subject of a very interesting study - I am still ranked number 1 on the board. Thank God I have the week off!

NQR

But determining "fair value" comes down to what IV you plug into your model, which is the crux of just about everything.

Do they plan to launch exotics to retail ? Who owns the site ? Looks interesting, I'll have a wander....

 

[NotQuiteRandom]

That is why it is easier to price the FX ones where the implied vol is easy to get. I have a real time implied vol feed from the interbank market. I used this.

The equity stuff is harder but where vanillas trade we can get market IV easily. Much harder to estimate it between now and first expiry month.

Did you get an email invite to their forum on Google?

I already emailed them to ask who they are, when it is live for real money trading etc.

Just made 102% profit on a 15 minute lookback!

;-)

 

[Profitaker]

NQR

Ah, so you mean below fair value in relation to the interbank market ?

No invite received, but only just joined.

I once studied Betfair's daily and weekly FTSE binaries. I was amazed how fairly priced they were, this using IV from the market.

No invite received, but only just joined.

 

[NotQuiteRandom]

I am long a load of long term lookback straddles and strangles on high 2nd order vol assets.

I expect to lose most of these and for it to mess up my performance but it will be an interesting experiment. As volatility increases with the square root of time the lookbacks do not get linearly more expensive. I am not suggesting that this will work but I am scraping the real time value off the page into my database to monitor the prices on the positions page.

I have also figured out a strategy with the time switches which I have more confidence in... will keep you posted.

I am like a kid in a sweet shop with this site!

 

[Profitaker]

I am long a load of long term lookback straddles and strangles on high 2nd order vol assets.

I expect to lose most of these and for it to mess up my performance but it will be an interesting experiment. As volatility increases with the square root of time the lookbacks do not get linearly more expensive.

Would the vega for a lookback be the same as for a vanilla ? What's the asset if you don't mind me asking ?

Be careful you don't rot your teeth in that there sweet shop LOL. Appreciate any update(s).

 

[NotQuiteRandom]

I will tell you my best one... GBP/USD. Doing very well on the short side and the long...not so much.

The vega on a lookback is MUCH greater than a vanilla as it is so volatility sensitive. Because you 'lock in' every point it goes your way rather than having to know when to buy or sell this thing also shoots up in value with a small change in volatility.

The derivative of vol with respect to price (Dprice/Dvol) shows the vega to be more than double that of an equivalent vanilla.

 

[Profitaker]

The derivative of vol with respect to price (Dprice/Dvol) shows the vega to be more than double that of an equivalent vanilla.

Wow ! How about, for an expiry play - Long vanilla straddle / short lookback straddle ?

 

[NotQuiteRandom]

Technically you could hedge 1 lookback with 2 vanillas.

They don't let you short the lookbacks but I have asked them if this is on the cards in my email (which I know they got from the notification). The IP address which it was opened from was in London.

We will see...

How is your trading there going?

 

[Profitaker]

Not started yet NQR.

 

[doktrade]

I see this as perfect game to test personal strategy that I have tested on historic data.
Lookback not so much but I like binary bets on FX. Lookback maybe interesting to try on stocks.

I have very successful on short time FX. With good volatility today, market favor my system, esp after identify 15-min trend with good mementum in up direction.

Interesting to observe binary range. Maybe it help me build position with less risk. Will investigate.
Loose money on no touch but looks useful to combine hedge to protect risk on binary.

 

[Robertral]

What a load a ****e, it looks like a college kid has made this site.
One can only buy on this site, so when it goes live its all the prices are going to be well higher than FV.
I think BetOnMarkets have made this site, it looks cheap and tacky.
They don't offer a bid as they aren't FSA regulated.
Why can I only bet in dollars?????