Tim Bovee, Private Trader: Binary Option: S&P 500 (beta)

Tuesday, May 19, 2015

Binary Option: S&P 500 (beta)

I opened a long daily binary option contract on the S&P 500 through the Nadex exchange.

S&P 500 (Nadex:US 500) Daily Binary

Binary option long the $2,124 contract
bought May 19 at 10:21 a.m. New York time with a $60 debit
and expiring at 4:15 p.m.

With the price of the S&P 500 index (SPX) at $2,128.89, implied volatility stands at 13.0% with 235 minutes remaining before expiration.

Ranges implied by options

Week	SD1 68.2%	SD2 95%
Upper	2133.74	2139.59
Lower	2122.04	2116.19

Implied volatility 1 and 2 standard deviations
The risk/reward ratio is 1.5:1.

Result

The price broke below a chart intraday support level I had set at $2,128.83 and I exited under my "one strike and you're out" rule at $2,128.73.

Shares declined by 0.01% during the lifespan of the position, or a -31.9% annual rate. The options position produced a 4.6% loss on debit, for a -20,361% annual rate.

Note I'm experimenting with binary options on the Nadex platform (www.nadex.com). I don't have a full rule-set developed as yet, but generally I'm applying the same techniques that I use for my volatility plays on stocks and their options. If I can satisfy myself that I can create an edge in these sorts of trades, I'll add it to my collection of strategies.

-- Tim Bovee, Portland, Oregon, May 19, 2015

References

My volatility trading rules can be read here.

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Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.