Scripophilist
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Fixed odds prices can be modelled very easily using the BS equation. Betonmarkets do this and add a spread. It's cheaper to use an option full stop.
Scripophilist said:
Hi Scripophilist - I wonder if you can help.
I took out a bet on Monday that the DAX would finish higher than 6113 at close on 19th May. How would I have set about replicating that by buying an option? Clearly If I can do so simply I would be mad not to take your advice.
I very much look forward to hearing from you.
ukoptions said:
It certainly is but the problem is that BetOnMarkets provides "digital options". Digital coming from the fact that when the bet expires, it finishes at 0 or 1.
What you are assuming here is that your bet will win. There are 2 ways the bet will go:
(1) Bet £6 and win £9 - great stuff - a 50% return
(2) Bet £6 and lose £6 - oh dear - a 100% loss
Please don't get carried away Mr Options, it isn't a cash cow. Regent Markets (BOM's parent company) make a hefty profit each year, and they don't do this by giving their money away.
Also, over the years, they have continually moved the goalposts when punters have been winning.
They aren't stupid....
ben_catt said:
Well of course ben_catt , but then all companies seek to make a profit from their customers. However a couple of observations.
1) It is possible to sell a bet prior to expiry so its not necessarily correct that the answer is 1 or 0.
2) Just as in any derivatives trading/betting the punter is judging that the "market" has got it wrong and he has got it right - isn't that premise behind every trading decision? If you judge in the above case that there is a better than two-thirds chance of being right you buy the bet.
Scripophilist
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Strange that somebody with the name ukoptions can't work out that fixed odds prices based on an option pricing model is going to be more expensive, especially with another spread in it.
