tar
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Interesting. Those bets are equivalent to portfolio insurance, i.e. long position plus put option or short position plus call option.
The drawback with the Bungee bet is that you have to open both the spot and option position simultaneously, whereas the same protection will be cheaper to buy later, using options, than at position entry - assuming the underlying goes your way initially.
If the underlying doesn't go your way initially, you were simply wrong and an ordinary stop loss would be cheaper protection.
The benefit of the Bungee bet is that both spot and option get closed out at expiry, so the bet makes sense if you intend to leave the position open until expiry - for example if you will be unavailable to close the position manually. Then, again, a limit order and a wider stop would do a good job as well.
Finally, the insurance protection will be cheaper the later in the day you enter the position, as there will be less time premium to pay in the option.
The drawback with the Bungee bet is that you have to open both the spot and option position simultaneously, whereas the same protection will be cheaper to buy later, using options, than at position entry - assuming the underlying goes your way initially.
If the underlying doesn't go your way initially, you were simply wrong and an ordinary stop loss would be cheaper protection.
The benefit of the Bungee bet is that both spot and option get closed out at expiry, so the bet makes sense if you intend to leave the position open until expiry - for example if you will be unavailable to close the position manually. Then, again, a limit order and a wider stop would do a good job as well.
Finally, the insurance protection will be cheaper the later in the day you enter the position, as there will be less time premium to pay in the option.
