guess your memory is fuzzy - put me on ignore list - then post reply to me - then ask SLE to reply then sle replies - oh an inbetween it all sent me an insulting PM . so I guess I'm not on ignore now...
Not sure what statements I redacted I agreed with him on many things. I've had no problem with SLE's post. If anything maybe it clarified misunderstandings you had about what I was posting? Or maybe I guess your seeing what you want to as a replacement for providing no counter evidence to any of my statements simply throwing insults and empty rhetoric. Thats okay
Maybe youve made up your mind and you don't want to be bothered with the facts.. Either way Good way to try to redirect can't blame you for trying.
I admitted before and then that the hedging idea with verticals is a cool concept I even gave you kudos previously maybe you put me on ignore before you saw that part.
I stated multiple times that I could see there being obviously more than one pricing formula but have yet to see any evidence that binaries are poorly priced verticals... and said before his post several times that verticals could potentially be used but where not exact as of expiration and don't have the intraday and daily expirations so I don't like them for that reason as well.
Binaries can be priced using calls delta (when strikes and expirations line up
Verticals have variable payouts within the strikes binaries do not it is over or it is under and this makes binaries have a higher payout on a larger price range (comparing a nadex binary to the vertical example provided). Im sure on other types binaries you could find other cases.
Bid ask spreads are manageable and acceptable especially in light of the vertical variable payout comparison.
Fees are fine less than verticals
Comparing the verticals to the binaries at expiration if in between the verticals strikes versus above ona buy or at or below on a sell the binaries made money every time
The pricing model is sound works well for me for multiple strategies
A summary list from the full analysis I did is as follows and I did not redact any of the statements made:
* The fees are substantially lower on Nadex binaries in comparison to the vertical.
* The bid ask spreads are in fact higher on the binary in comparison to the vertical.
* In both cases you don't pay the bid ask spread if held to expiration. So in comparing to holding to expiration the bid/ask spread is void.
* The fees will be lowered on the verticals if exercised versus closing before expiration.
* Exercise risk exist on the verticals but not on the binaries.
* Despite the higher spreads combined with the lower fees the binaries versus verticals, binaries easily surpasses that of the vertical spreads in profit in all price movement ranges due to a binaries all (in the money by 1/10th of 1 tick) or nothing payout (OTM) versus a variable payout at best on a vertical and a nothing payout if it expires OTM
* Bottom line in all cases more can be made using the binaries than that of the debit spread on a buy to expiration comparison
hmm yup looks like nothing was redacted that was not already said before the post...again good attempt at redirection
I had to take you off ignore to see if you'd respond to sle and of course you redact virtually all of your statements.
sle:
1 European digital can be priced and risk managed as an arbitrarily tight call spread (or put spread, same thing).
sle:
2 Nadex or any other provider will use this replication for pricing/risk-managing and pass the cost on to you via bid/offer.
3 This replication is model independent, does not matter if you use Black-Scholes or Normal model or any option model
No reason to disagree here sounds like more than one model can be used cool
4 Spread replication captures the skew of the implied distribution. Black-Scholes analytical digital price does not, the difference is pretty large.
I'm not comparing Black Scholes analytical digital price... Im just looking at the obvious and yet to be disproven reality that a call's delta "not price" on a call strike on CME ES options with the same strike and expiration as a strike and binary on Nadex .who know maybe they are using a different model..either way the facts are the facts the delta of the call and the price of the binary are same over and over again day and night. I have shown multiple screenshots and have yet to see anything proving this is not accurate. As well it can't be as they line up over and over and over again.
5 Delta is not the same as digital probability, N(d2) is - using delta is an OK approximation, but it's not ok for risk management purposes
I said it was not perfect that it was approximate not exact and was okay with this. I would not rely on this as a means for risk management and did not state such. So sounds like we are in agreement.
6 Replication, unlike an analytical model, produces manageable delta (non-Dirak delta)
So long as their are verticals with lining up expiration to do this with? or regardless of difference in time to expiration?
7 Replicating nature of the digital means that you don't need a dedicated "binary" exchage and no real value is added by such an exchange aside from additional fee and bid/ask spread generation
An exchange provides the service of transparency of not having the counter party know your position and who is posting what order. Also regulatory oversight that ideally protects the consumer is a benefit, though we all will admit does not always work Bringing buyers and sellers together.. The same could be said of any option i guess... binary vanilla exotics futures or otherwise though I'm sure some points could definitely be made strong for certain ones over others From what i have seen from most OTC binaries and their low payouts like 70% etc.. Risk $100 to make $70 they are making a $30 bid ask spread which is much larger than Nadex bid/ask spreads and fees. Of course they do have other exotic options with variable payouts but trying to stay on topic regarding a binary options that is open or close before expiration. I can't do intraday and daily verticals but I can on binaries and since you say they are the same this does benefit me. Also even if i could do verticals I, unless maybe using them for hedging, I would not as the variable payout structure if the underlying expires in between the strikes versus simply above the binary strike for full payout (as exhibited previously. Others may want to cool kudos have fun....
8 one sided American binary is not identical in price to 2x of the European binary because of the vega convexity and vega-spot cross effect. There is no perfect replication portfolio
Okay sure no problem
9 there is a pretty good chance that you are a Nadex rep
Well all I can say is I'm not... but what would you expect... I mean come to think of it you know those super high paid reps work around the clock posting at 11:30 and 1 am etc.. multiple nights a week... and are all about a forum thread. Really? And well i guess it only make since that if someone has posted valid points and are willing to debate a topic and they like nadex binaries of all things they must be a rep...Really? The question reminds me of a story my philosphy professor told us once regarding a story about Aristotle or Plato..whoever it was...anwyay. Someone trying to trip him up had a bird in their hands... they asked him ... Is the bird in my hand alive or dead... if he said alive they could kill it... and prove him wrong... if he said dead they would open their hands proving him wrong... his reply was "the answer is in your hand"
So cool looks like we are mostly in agreement sle no need to disprove you
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