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  1. #1
    Administrator Martin Kay's Avatar

    Binary Options VS. Vanilla Options !!!

    Hi, guys! We have an excellent article from Ammeo on the History of Options Trading and the difference between Vanilla and Binary Options. Check it out and you will find a lot of interesting information on the options terminology and history! If you have additional questions Ammeo could answer you directely in this thread.

    Originally posted by Ammad. Click here for the full review

    History of Options Trading

    Speculation trading stayed within the elite preserve of professional and institutional investors and was accomplished by over-the-counter dealings by the use of minimum regulatory control. The first noteworthy event to transform the image of options trading occurred in 1971 when the Chicago Board of Trade designed the first supervised options trading platform by forming the Chicago Board Options Exchange (CBOE). The CBOE was the groundbreaking body which still functions these days as one of the biggest options trading environment in the world.


    Some of the features and definitions of exotic options are given below:

    Call Option — Option to purchase the underlying asset.
    Put Option — Option to sell the underlying asset.
    Exotic Option — Any option with a complex structure or payoff calculation.
    Options Contract — The agreement between the writer and the buyer.
    Expiration Date — The last day an options contract can be exercised.
    Strike Price — The pre-determined price the underlying asset can be bought/sold for.
    Time Value — The additional amount that traders are willing to pay for an option.
    Intrinsic Value — The current value of the option’s underlying asset.
    American Option — Option that can be exercised any time before the expiration date.
    European Option — Option that can be exercised only on the expiration date.

  2. #2
    Veteran Member Ammeo's Avatar
    Hi Martin..thanks for sharing my article on the forum...any questions regarding binary and vanilla options are welcomed...

  3. #3
    Senior Member Grae's Avatar
    Nice article. Good insight for beginners.

  4. #4
    Junior Member

  5. #5
    Veteran Member Ammeo's Avatar
    Gr8 articles...thanks for sharing

  6. #6
    Solid Member

    I get it !!! !!!

    Very interesting articles, I was always wondering what are the differences between binaries and vanillas and now I think I got the clue. Binary options are mostly all or nothing type of options, they give you the possibility for great return with small movement of the underlining asset, while vanillas gives you only the right but not the obligation to buy or sell the underlining active at specific price, so they don’t offer fixed but variable return.

  7. #7
    Veteran Member uj.forex's Avatar
    in short, both are categorized under the umbrella of 'Derivatives' .....

  8. #8
    Master Member vinayakm's Avatar

    Great! !!!

    Quote Originally Posted by Ammeo View Post
    Hi Martin..thanks for sharing my article on the forum...any questions regarding binary and vanilla options are welcomed...
    You didn't cover weekend binary trading and it isn't a feature in these forums. Is it because of the increased risks associated with it - since there are few market related publications over the weekend and virtually no market events that affect trading.
    Is it also because mostly one touch options are offered and a few brokers (BBinary, CitiTrader, TradeRush) offer weekend trading albeit with less features?
    Weekend trading is so tempting for me with its high yields that can go up to 500%.
    I would like your thoughts?

  9. #9
    Junior Member
    If yields are as big as 500% then certainly the strikes would be very far, so that betting on both directions would achieve generally a 200% loss.
    But I guess, since a loss is the same as a loss on any day or trade, why not do it? You need 3 wins during the week to recover what you lose on this one.

    I probably wouldn't do this trade even with pure binaries, though it looks...interesting. Pure binaries would mean that these touches quote at 20 for buy (20 in your 500% yield assumption, therefore 100/(500/100)=20) So I should buy @20+20 to wait for a touch and get my 100. But if it doesn't happen on the opening, chance is gap is filled and market returns to where it was. The only moment of interest would be the opening of the market, when theta would be probably full, with lowest time value consumption. So wherever it goes, best choice is to sell options on open. If there is a touch, very good! If there isn't, I don't risk theta bleeding. And if the market moved enough, probably I would be able to cover with a small loss or even flat.
    Last edited by fxeconomist; 01-13-2013 at 12:42 PM.

  10. #10
    Specialist Member LesterK's Avatar
    Quote Originally Posted by fxeconomist View Post
    If yields are as big as 500% then certainly the strikes would be very far, so that betting on both directions would achieve generally a 200% loss.
    But I guess, since a loss is the same as a loss on any day or trade, why not do it? You need 3 wins during the week to recover what you lose on this one.

    I probably wouldn't do this trade even with pure binaries, though it looks...interesting. Pure binaries would mean that these touches quote at 20 for buy (20 in your 500% yield assumption, therefore 100/(500/100)=20) So I should buy @20+20 to wait for a touch and get my 100. But if it doesn't happen on the opening, chance is gap is filled and market returns to where it was. The only moment of interest would be the opening of the market, when theta would be probably full, with lowest time value consumption. So wherever it goes, best choice is to sell options on open. If there is a touch, very good! If there isn't, I don't risk theta bleeding. And if the market moved enough, probably I would be able to cover with a small loss or even flat.
    I couldn't understand you very well fxeconomist and what is theta by the way?

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