Binary option delta hedging

You are using an out of date browser.

It may not display this or other websites correctly. You should upgrade or use an alternative browser.

Discussion in ' Options ' started by obsidian , Nov 8, Log in or Sign up. I was wondering how a larger dealer like igmarkets would be hedging their risk typically or if they just warehouse it like a casino would.

A binary option is perfectly replicated via a call spread, that's how a dealer hedges. Well, they are pricing a digital by pricing a tight call spread, but don't always hedge it. When I was running an exotics book, I would only hedge really large digital risk e.

Oh, nobody exactly replicates each and every tiny digital, that would be silly. The market maker trades them and hedges delta, if the call spread width is wide enough, you will statistically make money.

However, if digital risk on any strike is too high, we can always offset it in vanilla options, not necessarily of the same maturity. I am wondering how this would generate feedback into the options markets if it is done across several binary dealers at once.

Some of these binaries on equity indices don't even have liquid listed options markets They also know who they are betting against and will back away from their prices if a big punter with a profitable history tries to hit them in a fast moving market.

So no hedging but they rely on a few dirty tricks to ensure they are profitable at market making these instruments. You must log in or sign up to reply here. Your name or email address: Do you already have an account?

Bin - MT4 Binary Options - Tools4Brokers / Tools For Brokers

No, create an account now. Yes, my password is: Forums Forums Quick Links.

Delta Hedging Strategy for Trading Binary Options

Search titles only Posted by Member: Separate names with a comma. Search this thread only Search this forum only Display results as threads.

Style Modern Layout V2 Contact Help Advertise Home Top RSS. ET IS FREE BECAUSE OF THE FINANCIAL SUPPORT FROM THESE COMPANIES:.