What are Double Binary Options?
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Double binary options involve trading on the performance of two assets simultaneously, allowing traders to express directional views on both and potentially earn higher returns compared to individual trades. Double Binary Options necessitate both components of the wager to succeed for a payout. For instance, in a double-call bet, both S1 and S2 must exceed their respective strike prices of K1 and K2. These financial instruments provide an opportunity for speculators to merge forecasts on two different assets into a single instrument, potentially yielding significant returns. For instance, a double call with rho = 0 is akin to betting on two racehorses in different races. However, utilizing standard binary calls entails risks due to potential reversals, which are amplified with double options.
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=> Deltas for double calls
The tunnel deltas for double calls are consistently positive. While rho has a "delta" in profiles, its value is limited as rho remains constant and is derived from statistical analysis. Hedge strategies typically involve delta-neutralizing the underlying pair. Nonetheless, conventional and binary options may offer more effective rho-neutralization for speculative purposes. It's crucial to note that with double calls, both assets must perform as predicted to cover the initial investment, unlike single bets where each asset can independently generate profits.
=> Applications such as Gold/Oil doubles
Double options can be applied to assets like gold and oil, with implied volatilities derived from the binary options market. One can purchase a double call and sell individual gold and oil binary calls if a positive correlation between the assets is anticipated. These options are path-independent, making them suitable for comparing different binary calls and puts. Traders can hedge both sides of a "double" position using binary calls and puts. Rho plays a significant role in assessing double bets, similar to considerations for historical volatility and correlation coefficients.
Overall, double calls and puts are strategies for confident traders who believe in accurately predicting the future price levels of two assets, offering improved odds for profit potential. They can also support the notion of specific assets outperforming or underperforming a broader basket of assets.
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