CapitalSpreads binaries

[NotQuiteRandom]

Hi Jules,

1) Whether or not you trade the FX bets or any FX markets this would not impact upon their being the optimal testing environment. The numbers are run in the same way.

2) Your best bet would be to maintain wide spreads and go naked. The gamma around the money at the point immediately before expiry is obviously infinite and untradeably high for short term bets. They are not unhedgable but binary delta is very unstable given the amount of gamma/theta that they have (consider the extent of the delta bleed). I wish you luck but fear that you will find your hedging to be of little benefit. If you are interested in the academic literature on the subject have a look on Google Scholar. A brief overview of the problems surrounding the issue can be found in Nassim Taleb's book Dynamic Hedging: Managing Vanilla and Exotic Options (ISBN 0471152803).

3)

i) I do not deny that other users believe this to be the case. The reported observations of numerous (occupationally rather than personally) biased participants is not a substitute for scientifically approached verification.

Other binary providers offering prices to unregistered users include the primary vendor of this discussion (Ladbrokes), BOM and various others (can specify if required).

The vendors are indeed within their legal rights should they wish to price discriminate - on this point I agree.

ii) To clarify, how are you calculating the overrounds? Please explain your method as I think this may help us to understand your basis for proposing an inferior vendor based on price and then a superior one.

iii) Quantifying the relative seriousness of a player would be too difficult without knowing how you are defining them. Am I a serious player as a function of any one or more of the following or are there other factors: Financial education / qualifications, experience, risk adjusted return on funds traded, quantity of capital allocated to the financial markets...?

You are spot on with your volatility statement for non-FX bets as the vendors pricing the bets will be using an extrapolated implied volatility where available (FX markets) and an estimation based upon the near month's options implied vols where it is not available. The FX market would also be good for testing relative pricing between participants as there is a liquid t+0 implied vol so there is no need to estimate volatility. We can get real time 100% correct pricing using a Black-Scholes framework.

Your last point is addressed by the periodic sampling of the data proposed in my explanation of the proposed comparative pricing analysis.


As I said, the objective element of this conversation is the overround so please do explain your method of calculation. This will allow us to fully clear consider this matter.

As for speed of execution, this is obviously valuable but does not relate to the original premise of the discussion which was our assertion that one vendor has:

"the widest spread/overround of any of the providers I have seen so far..."

It is this statement that requires a more detailed investigation if you are unable to calculate that which you claim to observe.

I look forward to being corrected.

Cheers,

NQR

 

[BinarySoft Chris]

1) Fair point.


3)

ii) The overround is the sum of the probabilities for the opposite outcomes - e.g. when betting using LB in the past on stock indices I've seen odds such as 1.15 quoted for one direction and 3.0 for the other, and sometimes worse.

1/1.15 + 1/3.0 = 1.203

= 20.3% overround


For binary odds it's the difference between the quoted buy/sell prices - binarybet are generally quite tight, usually around 4 percentage points for most contracts.



iii) In terms of "serious player" I loosely mean someone who is betting a substantial proportion of their capital and spending a substantial portion of their time.

 

[NotQuiteRandom]

Hi,

Thank you for the clarification:

Your calculation is fine in the singular instance of at the money bets but can obviously not be applied to any which are OTM. We would need to look at a range of strikes to get a 'fair' picture.

I think, please note the introduction of subjective proposition here, that a 20% spread for a binary at the money is just about within the bounds of what one could call reasonable. My earlier research indicated that the vendor in question employs a decreasing markup as you go further OTM. The next strike out was only 7-10% over fair value. I wish I had archived the data now. Not sure what others do.

The additional point to note here is that no one else is offering such short term bets as Ladbrokes. Bets which are this short term should cost a premium relative to longer term ones. I look forward to more vendors with 10 minute bets coming to market so that we can run the numbers.

Spreads always decrease with competition... look at CBOE over the last 30 years.

iii) I don't know if this makes them a worthy witness but..... ok.

Enjoy the remainder of the weekend.

NQR

 

[BinarySoft Chris]

The additional point to note here is that no one else is offering such short term bets as Ladbrokes. Bets which are this short term should cost a premium relative to longer term ones. I look forward to more vendors with 10 minute bets coming to market so that we can run the numbers.

binarybet offer 5 minute bets on the FTSE between 4pm and 4:25pm, and 20 minute bets on the FTSE and Dow Jones, their overround on the 5/20 minute bets is substantially lower than the LB overround on *hourly/daily bets* let alone 5 minute ones.

 

[NotQuiteRandom]

As I said, I neither agree nor disagree that vendor A is better than vendor B. For your claim to be valid we would need to carry out the test in the manor defined. For you to say that:

"their overround on the 5/20 minute bets is substantially lower than the LB overround on *hourly/daily bets* let alone 5 minute ones."

is equivalent to your opening statement which initiated this discussion. Your empirical data is not properly recorded and only randomly sampled from at the money bets.

I fear that we are back to where we started... unable to confirm whether A, B, C.... n is better.

If the research is doe you may prove to be right but your dogged insistence is not a substitute for proper analysis.

NQR

 

[BinarySoft Chris]

As I said, I neither agree nor disagree that vendor A is better than vendor B. For your claim to be valid we would need to carry out the test in the manor defined. For you to say that:

"their overround on the 5/20 minute bets is substantially lower than the LB overround on *hourly/daily bets* let alone 5 minute ones."

is equivalent to your opening statement which initiated this discussion. Your empirical data is not properly recorded and only randomly sampled from at the money bets.

I fear that we are back to where we started... unable to confirm whether A, B, C.... n is better.

If the research is doe you may prove to be right but your dogged insistence is not a substitute for proper analysis.

NQR

Are we confusing the definition of overround?

It is a fact that Ladbrokes currently have a higher overround across *all* of their financial bets than binarybet.com at all times apart from those which are very volatile (in which case all financial providers raise their overrounds substantially).

 

[NotQuiteRandom]

There is no ambiguity in the definition.

My original question was simply as to whether comparative analysis had been done on the range of vendors to determine who offered the best / worst odds. As I have repeatedly stated this would validate your assertion that one is tighter than another. It is not that you are necessarily wrong, rather that we can neither verify nor falsify your claim without a detailed comparison.

Perhaps there is demand for an odds checker site to compile odds across sites for comparative purposes as exists in the sports betting market.

 

[BinarySoft Chris]

The odds checker sites do their job well for long term events, but they don't update fast enough to be used for real-time purposes.

The main issue currently with binary betting is that there are lots of "serious" players who are getting frustrated with the various providers rejecting their bets, not just during volatile periods.

 

[NotQuiteRandom]

Well, hopefully someone will come up with an alternative offering in the new year.

 

[oriana]

I just opened an account with Capital Spreads today, then I read this thread!! Do they still reject as many bets and offer re-quotes, or have things improved since this was written? Also how long on average do you have to wait, before you know if your bet has been accepted?

 

[leunt]

I just opened an account with Capital Spreads today, then I read this thread!! Do they still reject as many bets and offer re-quotes, or have things improved since this was written? Also how long on average do you have to wait, before you know if your bet has been accepted?

I've given up on them a few months ago.they took too long to accept or reject trades and 80% of them were rejections.But what put me off was when i tried to buy the ftse daily once,i tried the first time,it was rejected,the second time the same,the third time a message popped up saying something similar to this from the dealer(julian i think his name was)"you can't expect to buy at 81 when the price is at 85" It was laughable since i don't make the prices,So i withrew my cash a week later.Cantor binaries is the same absolutely unfair in their dealings,which makes them useless in my book.