Profitsee – Future Economic Surivival

Divinations in Forex, Commodities and Economic Patterns

Box or Binary?

I compared a 4pm near-at-the-money 3325 long bine against Oanda’s box option product at 1127 EST when EUR was at 3327. The premium to sell (to hit a price below 3325 on OA’s box) was $45 for a (4pm-4:05pm) compared to the $50 at the same price and time for the HS binary on Hedgestreet.com, representing a 10% difference. You would pick up more premium going with HS for the selling of the bine than buying the box. And these are already factoring in the wide spreads on HS. (Update 2/11/2009: Reading my own post here 2 years later, I assume I was referencing some kind of arbitrage opportunity here)

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Filed under: Uncategorized, ,

ATM Strike Leverage

euro-tic-values.PNG

The implied cash market leverage for an At-The-Money bine (at $50) is 1329% compared to the highest fx cash market leverage of 200%. If you were long an ATM bine at $50, the equivalant 200% cash positon would be $333. In other words, if you feel an ATM 1.3325 2pm bine was going to hold, you would receive an approx 50% discount on Hedgestreet.com for your trade. This is a leverage-calculated price.

Even if you felt the price wasn’t realstic, your stop-cover would have offered some protection. As you see to the left, the post-New Housing figure announcemen’t affect on the Euro on the 12-2pm NY EST session (per-tic time frame). The maximum leverage on Oanda.com is 50% which gives a equiv. cash position of $1330 on 50,000 units. Each 1 pip = $5, 10 pips = $50. Say you sold a 3225 2pm. You see the price went to 3339 approx. Your loss is binary-static; your follow-up action would be to spread long 5 pips.

Theoretically, a potential 5-pip loss over 2 hours would yield a “10-pip” gain on the 3325 2pm bine. As you see in the graph, your cover-loss spread would have been egagined at 1.3330. The breakeven would have been 1.3338. Is this noise? Take your 5 pip profit in cash and wait till prices go back to <$50 on the 3325 bine. Your profit would be your Cash Pips – the noise factor. Or would you want to implement the tight stop? as each tic up represents your net profit.. But, alas, as the case may be, you’ve paid for the privledge to play this small range up , waiting for it to come down to the bine, then up again in cash.

Filed under: Forex,

VIX in Feburary Housing’s impact on EUR/USD – Loss/Cover Play

cash-february-housing-figures.JPG

This was a 3278/3250 -12 noon. (Long EUR/USD at 3278 short 3250 @ 93) I took on at 9am. In play today was today’s Feb. Housing figures and Event Risk – the capture of British sailors by Iran and rising oil, all adding fuel to the fire, no pun intended. Naturally all this would lead to a >7 pip VIX risk, even for my most modest clients. Even a non-event risk like the Federal Reserve last week announcing they there would be no change in rates caused a >7 pip VIX shot.

Loss/Cover Play:  My initial stop loss on this trade was -25 pips (3253), and my bine close I set at 63 (+30 pips). This is one of those classic stop-loss covers. If EUR/USD stopped out, it would of breached the bine close for the cover-stop-loss. However, the VIX event horizon more than likely would have covered a $7 loss on the 12 noon 3250. Eventually my cash got closed out at 3340 on this trade by a tiny trailing stop I kept moving up, for a net pip gain of +50 in 1 hour.

A simple buy-into-VIX straddle on both of these at 9:30am could have also been employed, but the same leverage was closely met by the cash + 1-sided bine strategy employed. I attached today’s graph just to show the bine’s (green lines) and the price going through these levels. As you can observe, the straddle would have been successful given the propensity for the price to climb through the 3300.

The one advantage the VIX straddle has over cash is the delta. VIX was priced, but the VIX surge was not. Thus the change in OTM bines per pip from, say 3280 – 3310 would have been around 50% greater than most cash – leveraged accounts of the same amount. For example, from 10-15 to 60 $ per contract as it went ITM, even with 2 hours until expiry.

Today’s VIX was pretty much skewed. Apparently the Street was caught off-guard with the February’s Single Home Sales. Even CNBC noted the impact February’s weather may have played on this figure.

Filed under: stop-loss,

Hedgestreets’ Binaries featured Forex TV

This video is an old promotional piece introducing binary options. At the time it was made, HS currency binaries were traded three times a day, and the exchange was open until 8pm EST. Currenly its hours are until 4pm EST. I think the interviewer is pretty funny!

Filed under: fun,

New York Stringer Magazine’s take on Hedgestreet’s binaries

David Katz of New York Stringer Magazine makes the following observation regarding the regulated trading of binaries at Hedgestreet.com.

The option premium…represents the investor’s view of the odds that the event will occur.  HedgeStreet is careful to avoid the use of the terms “bet”, “odds”and “winnings”;  as a regulated exchange, they are eager to avoid being mistaken for a gambling enterprise. Their mission is, in fact, to bring the advantage of hedging instruments, previously only available in large denominations, to the retail market

The implications of offering these type of derivatives teeters on that edge of gambling when such short-term (2 hour) options are “trading” at-the-money. “Trading” is in quotes because, at this time, the volume in binaries is thin or non-existent. Binaries are virtually indistinguishable from a wager when, say, a 1.3325 10am strike binary is at $50 at 9.55 am when the EUR/USD is at 1.3325. At worst, if the underlying was for a small-traded stock with light volume, this would be manipulation; at best, even in FX, its a gamble.

So how does Hedgestreet’s regulated binaries overcome this perception? Its only a matter of time. In the late 1970’s when the first equity indicies were traded, and also in the 1980’s when the International Swaps and Derivatives Association came out with their contracts, the same gambling-mentality existed. As most people in the ISDA and managed-money know, derivatives are merely risk-management tools fitted to achieve certain objectives in one’s portfolio. Those institutions, too, endured the same challenges that Hedgestreet.com is experiencing.

Anyone in the financial world will depict — in hindsight — the higher rate of return equities provided over bonds and money markets going back 50 years. However, go back 50 years ago, were those money managers making the same observations? Those who cite history merely underscore the need for equities  — the beginning, crude form of derivatives — in ones portfolio. And as the 1980’s and 1990’s showed, mutual funds, hedge funds, equity options and ETFs were developed along the way. Hedgestreet.com seems no more different than the outgrowth of these products and services. The chasm they have yet to bridge is the retail suitability. As Katz points out, this indeed presents itself as a “mission.” And in that respect, naysayers will eventually dismiss the exchange as “gambling”, especially in its present form.

Filed under: Forex,

MAJOs fitted to todays Support and Resistance levels

majosoverlay.PNGMAJOs Table
This table took the max R1 (resistance) level and the min S1 (support) level of the CL providers contained in the MAJO resource (see Blogroll for link) and fitted ito the corresponding r1 bine resistance and the s1 bine support.

From 5am – 4pm all open prices were contained within the 3250 to 3200 range. At the 8pm open, the price was already far off its support, so 3200 seemed to be the next “support” level. Buying the 10am 3200 bine when the EURUSD was at 3218 at 8am would have been a good choice. Resistance was approached at 12noon open. Selling a 2pm 3250 bine would of been appropriate at that juncture.

Next, computing OA cash on this trade to HS.

10:56 PM 3/15/2007

Filed under: resistance, support, WIP,

Example of a capturing VIX using a binary

Today’s USD reports before 8:30 AM EST were as follows:

  • USD Initial Jobless Claims (MAR 10) 12:30 8:30 328K 328K

  • USD Continuing Claims (MAR 3) 12:30 8:30 2526K

  • USD Producer Price Index (MoM) (FEB) 12:30 8:30 0.4% -0.6%

  • USD Producer Price Index Ex Food & Energy (MoM) (FEB) 12:30 8:30 0.2% 0.2%

  • USD Producer Price Index (YoY) (FEB) 12:30 8:30 0.2%

  • USD Producer Price Index Ex Food & Energy (YoY) (FEB) 12:30 8:30 1.8%

  • USD Empire Manufacturing (MAR) 12:30 8:30

Here is a “before and after” view of HS on the 10AM EST BINE:

hs4.PNG

Here’s an example of a modest VIX move at 8:30 am, enough to hit the bids on the 10am 1.3200 contract. Pre-830am, there were was neither volume nor open interest on this contract. Post-8:30AM, the 1.3200 bid resulted in 8 bought with the last price at 62. Since EURUSD was coming off S1 levels at the beginning of this morning’s EUR trading, buying into downside VIX was the profitable thing to do at 1.3200.

I assume that the 8 Volume and 8 Open interest indicates is indicative of 1 entity. The trade(s) were set up with a pre-set bid and pre-set ask. of 16 contracts (e.g. Pre-8:30 am, the trade was bid around 40-50. Then it hit. 8 contracts were sold  at 62, while the other 8 were held until 10am expiration.

 

Filed under: Uncategorized,

Weekly Binaries (Sometimes) appears on HS

CLICK ON IMAGE FOR DETAILS

Filed under: Uncategorized,

Hedgestreet’s precarious viability

The truth is dissapointing. Even though I’ve computed the binaries life on Hedgestreet, this bloggers reaction to the Hedgestreet market is not surprising. Using Oanda.com, one could conservatively mirror HS binaries by choosing the appropriate percentage of leverage.  By increasing their contract values form 10 to 100 dollars, they’ve attempted to go into a market where the blogger correctly identifies in his bravado style.

What was in that binary derivative cocktail? Hic.The CME and Globex is basically Bud Lite, while Hedgestreet is like a couple of shots of Jack Daniels. I’m talking about the hangover portion of it.

Filed under: Uncategorized,

Akmos sentiment indicator in GMT

Akmos

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