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The binary options call accumulator is an extension of the each-way call. There are four strike prices with the settlement prices at 0, 10, 30, 60, and 100. This is a strategy that, when bought out-of-the-money, can provide extremely high gearing, and increasingly rewards the speculator for an increasingly accurate forecast.
🎯Nikkei 225 Binary Options Call Accumulator Price Profile at Expiry
The profiles of Figure 1 shows how the binary options call accumulator is affected by the passing of time. Since the strategy is a weighted average of the individual binary call options within the binary options call accumulator the profiles closely map each other until there is only one day or less to expiry. As with the eachway call option, this strategy can be made more or less aggressive in terms of the delta by the narrowing or broadening of the gap between strikes, plus the incremental increases in settlement price will contribute to the delta profile.
🎯Nikkei 225 Binary Options Call Accumulator Price Profile – Time to Expiry
In the example of Figure at the Nikkei 225 Index price of 8,000, the 25-day binary options call accumulator has a fair value of 3.00. So, with the lowest strike price at 8,250 immediately above which the settlement value is 10, the index only has to rise 250 to generate a profit of 10/3―1=233% at expiry. In contrast, the 8,250 binary call option with implied volatility of 20%, 25 days to expiry, and underlying of 8,000 has a fair value of 26.96 which on settling in the money would return a profit of 271%, just 38% more, but without the huge upside potential that the binary options call accumulator still offers.
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The binary options call accumulator provides a smooth price profile for the strategy with even only 1-day to expiry. It is only with 0.1-day to expiry that the profile looks remotely like the expiry profile. Subsequently, this strategy is a great deal less risky for the market-maker as well as the speculator who buys it out-of-the-money because firstly the delta is not high which means directional risk at the trade’s inception, but furthermore, the vega is low, and finally, at expiry the maximum incremental change is just 30 (above the upper strike) which vastly reduces ‘pin’ risk. With these risks taken out of the equation, the market-maker is likely to produce highly competitive, tight bid/ask quotes.
Nikkei 225 Binary Options Call Accumulator Price Profile – Implied Volatility
The Binary Options Call Accumulator is calculated as:
Binary Options Call Accumulator =
Payout(K1) x Binary Call(K1) + Payout(K2) x Binary Call(K2) + Payout(K3) x Binary Call(K3) + Payout(K3) x Binary Call(K4)
where K1 is the lowest strike, K4 the highest strike and the Payouts are the incremental increases in settlement price and have to aggregate to 1.
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