NADEX

jackieo79 said:
More accurate comparison:
If you want a better comparison a apples to apples comparison. You would be better suited comparing a call to a Nadex spread


Just trying to help I hope this makes sense? If not let me know. Great discussion :) Hoping we can get to some trading ideas or something like that to all benefit on it but I get its important to understand how the instrument works before going there.
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You keep repeating the same BS propaganda and you don't understand that they're equivalent (to the vanilla cs or ps), simply with wider markets on Nadex. The vanilla listed mkts are simply better than Nadex in terms of liquidity and edge loss. DO NOT trade with a dealer-mkt UNLESS you're trading TOUCH mkts *or* you need daily expirations.

A digital/binary is equivalent to a vanilla call or put spread, NOT a call or put. You don't understand equivalency and yet you're attempting to school people on these products which is unfortunate.

Further, you cannot derive the digital price by the call delta. WTF bro.
 
jackieo79 said:
You take the delta of a call expiring at the same date/time with same strike using a black scholes model and that is the price of a binary.
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lol no you can't. Delta is not an ideal approximation and you would need to use the call spread D as the QND approximation.
 
You are repeating the same arguments but providing not evidence that your statement is accurate. So i have to reply with more evidence saying this is why it is not.

Is it any more wrong "propoganda" for me to reply to something i think is inaccurate or that I like this and not that ---than it is wrong "propoganda" for you to reply and say you don't think I'm accurate and you like that and not this? This is just a discussion and I like any other trader just wants to learn.

You say I don't understand... ok please help me understand..If I am factually wrong show me so I and others can improve. Please show me and change our minds the evidence should be obvious.

Size/Liquidity
I showed it to you in screenshots above that liquidity was higher yet you state again that the bid/ask size is higher on verticals despite the facts?

Where am I wrong on this? If I am cool tell me but tell me with evidence I gave evidence that the size liquidity on a same expiration time/date contract on US 500 binaries was higher than on SPY Verticals. If I am wrong I am cool with that but show me with evidence. But just saying its not liquid when well the facts show it is does not make sense.

Wider Markets

The markets on the veritcals on SPY are showing .03 to .10 or even more wider (ie .30 etc.) if you use wider verticals etc..
1 call or put contract equals 100 options .03 x 100 = $3.00, .10 x 100 = $10 on one option contract width of bid/ask market. On Nadex weeklies on US 500 the width is right in the middle of that at $6.00. Ideal at $3.00... no but acceptable, same average as a ETF Vertical ie on SPY? Definitely If I'm missing something here please show me.

http://screencast.com/t/fog47QNP
http://screencast.com/t/vM0konwIhN

Note if i really want to compare them i would equalize the profit potential and make them 2 strikes wide - if i do that the bid/ask goes from .04 to .18 thats a $4.00 to $18.00 bid/ask spread on a SPY vertical expiring Friday.


Equivalent Contract
Please help me understand how I am wrong that they are equivalent. When the pricing model is an exact reflection of the delta of a call option (not put/call veritcal spread) http://content.screencast.com/users/...02-03_1516.png

You stated that they are equivalant (cvs pvs)... please explain how you arrived to this conclusion that a binary is equivalent to a vertical in its pricing model? What math are you using for this?

*Delta 0 to 100 - Binaries 0 to 100 (vertical spreads max is determined by width can vary
)
*Delta at expiration will be either 0 or 100 - binary at expiration will be 0 or 100 (verticals variable payout - not all or nothing at expiration unless above upper strike or below lower strike)

*Delta of a call strike when the price of the underlying market is at the strike of a call option the delta will be 50 if the underlying market is at the strike of a binary the mid price will be 50 (this is not the price of an Vertical spread when ATM)

*Delta is a representation of probability of being ITM just as a binaries price is a representation of probability of being ITM (not exact but close) (vertical spreads - width will determine reliability for an expected range calculation)

*Delta = binary price - when the call strike = the binary strike and both have the same expiration date and time (as shown previously - This is undeniable... Over and over... just coincidence that they ALWAYS line up??


If I am wrong... Cool - just help me see it do a comparison and show me the match behind the theory that they are the equivalent to the CS/PS - maybe you have something here. If you do awesome. But i need an example to see this is factually true and contrary to the pricing model i showed above.

Edge Loss
Note sure what you mean here can you provide a couple examples of one versus the other so I and other can understand?




Again I don't want this to be some heated thing. If you just don't like the contracts whether it be to opinion on pricing model or bad experience or whatever thats cool don't trade them no need to convince anyone to do anything. Either way facts be presented and the facts should be obvious on what has what edge and what is better for what strategy of trading etc...


drownpruf said:
You keep repeating the same BS propaganda and you don't understand that they're equivalent (to the vanilla cs or ps), simply with wider markets on Nadex. The vanilla listed mkts are simply better than Nadex in terms of liquidity and edge loss.
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jackieo79 said:
fine you don't like delta approximation etc.. not really worth the effort..

either way - pull up a weekly future ES emini option show delta - find a close call strike on weeky binaries show me they don't match

http://www.elitetrader.com/vb/showthread.php?t=281824&page=2
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Delta is a fine QnD as long as you're comparing the digital to a call spread. I've modeled and traded digitals, touches, 2xKOs, lookbacks, etc. for 14 years. I took Trinitas Capital out of the game as well as Oanda -- they were pricing near-ATM digitals as touches and lost $600k in less than three weeks as a result. I am done tooting my own horn. Regardless, any first year student knows better.

It matters less as you go further OTM (deep OTM digi will converge to deep OTM call), but you have to compare the (delimited) digital to a SPREAD. The digital is priced (by OTC dealers) by the vola (strip/skew) and by the width of the vertical (and barrier shift). It's a perfect replication if it's "discrete" enough; i.e., terms are truly equivalent.

Go ahead and price an ES Feb7 1750C against the Nadex digital and you'll see. wtf man. I will open an account today if you tell me you work the models for Nadex.
 
jackieo79 said:
*Delta of a call strike when the price of the underlying market is at the strike of a call option the delta will be 50 if the underlying market is at the strike of a binary the mid price will be 50 (this is not the price of an Vertical spread when ATM)
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Yeah, therein lies your problem. You're basing equivalence on a coincident condition.
 
Sounds like you have done well enough. Thats awesome.

I compared the binaries like you said. ITM/OTM etc... the fact is the price of the binary is the delta the same strike with the same expiration. http://screencast.com/t/w7mGArF39cCN call it coincidence or whatever but its always like this.

drownpruf said:
Delta is a fine QnD as long as you're comparing the digital to a call spread. I've modeled and traded digitals, touches, 2xKOs, lookbacks, etc. for 14 years. I took Trinitas Capital out of the game as well as Oanda -- they were pricing near-ATM digitals as touches and lost $600k in less than three weeks as a result. I am done tooting my own horn. Regardless, any first year student knows better.

It matters less as you go further OTM (deep OTM digi will converge to deep OTM call), but you have to compare the (delimited) digital to a SPREAD. The digital is priced (by OTC dealers) by the vola (strip/skew) and by the width of the vertical (and barrier shift). It's a perfect replication if it's "discrete" enough; i.e., terms are truly equivalent.

Go ahead and price an ES Feb7 1750C against the Nadex digital and you'll see. wtf man. I will open an account today if you tell me you work the models for Nadex.
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I guess if you call a coincidental condition something that literally always happens sure...

Show me where I'm wrong? Give me some proof versus just stating an theory without anything to back it up. Pull up some charts put some math up with live prices on them and show us...

http://screencast.com/t/6oE9eVvSAkC at market at $50 mid show me one example where its not

As shown above strike delta lines up with binary price: http://screencast.com/t/w7mGArF39cCN

Regarding touch markets....On Nadex you can get out with an advanced take profit limit order. Since I know the binary pricing i set the limit order knowing what the binary will be worth when it hits that strike. It will be worth $50 mid. So I then look at say 47x53 and maybe even a few extra ticks to take advantage of it. So i can buy at 20 and sell say at 47 etc... This will be priced the same as a touch market binary as its the same thing by getting out when the strike is hit versus where the price is in relation to the strike and time in relations to expiration along with currently calculated IV.

You want to talk about equivalency but you offer no counter evidence just theory stating your statement is valid and mine is invalid.

I showed evidence on liquidity being comparable even better, bid/ask spread being comparable, even better, i showed evidence on pricing relation to delta. You've posted no evidence to the contrary.

Come on man give me something. Sincerely you are obviously passionate about the supposed incorrect information. Its unfortunate that you are trying to school us on the inaccuracies but providing no evidence that backs your statements. What I have posted and taught is accurate and practical and has yet to have a counter statement with evidence proving otherwise.

Obviously you know options backwards and forwards. If I am so wrong despite all evidence ive presented it should be easy to show. if I'm wrong show how im wrong in my evidence. Ive put it right out there for you to knock down. If there is some equivalency relation on verticals and binaries...... who knows maybe we are both right then show us something.

But, I've seen nothing not a single example or piece of evidence from you that backs up equivalency of a vertical call put spread just statements that it is what it is. You have me intrigued and I would like to see the relation but so far I've seen nothing to show this is valid. And I'm cool with being wrong and learning something new but I need something that shows the statement it to be accurate.




drownpruf said:
DO NOT trade with a dealer-mkt UNLESS you're trading TOUCH mkts *or* you need daily expirations.. A digital/binary is equivalent to a vanilla call or put spread, NOT a call or put. You don't understand equivalency and yet you're attempting to school people on these products which is unfortunate."
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drownpruf said:
Yeah, therein lies your problem. You're basing equivalence on a coincident condition.
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You're wrong. It's simple equivalence. The delimited digital option (n/100) is equivalent to a delimited vanilla structure, in this case, a call vertical -- not a call. The call continues to earn (approaching D100), while the digital is limited to 100-n. There are other proofs, but the blatantly obvuous will suffice.
 
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