The Call Banker is a strip of same expiry, different strike, one-touch calls. As the underlying asset price progressively hits strikes the payout is locked in.
The Call Banker provides automated incremental payouts as the underlying asset travels through the strikes.
Very often chart analytics provide a synopsis that a product, e.g. S&P500 futures will go higher if a particular level above the current price can be held. Well if the price does get up to a level and holds there can only be two outcomes, it doesn’t move or it goes higher. If the level is not held then very often the resistance level gains greater influence which can result in the underlying price falling away sharply. The Call Banker binary option strategy increasingly rewards the buyer when the underlying price meets progressively higher targets. The payout is ‘banked’ in that even should the underlying price drop like a stone the buyer of the option can rest assured their winnings are guaranteed.
The Call Banker is a strip of one-touch call options with the payouts summing to 1, as in Table 1. Unlike the Call Timeline which is made up of a series of One-Touch Calls with the same strike but different expiry times, the Call Banker has one expiry but different strikes. In effect the Call Banker is a weighted average of a series of One-Touch Calls and as such it provides protection against a price reversion. In the below example the Call Banker is made up of four strikes although this can be changed to any number of strikes.
Call Banker w.r.t. Time to Expiry
The following examples are for the S&P500 Call Banker. The strike prices and returns are:[table “79” not found /]
with implied volatility at 17.5%. Days to expiry in the right hand legend.
The price profiles show how, as the strikes get touched in turn, the minimum payout of the strategy increases until after the third strike is touched the strategy turns into a simple one-touch call with a payout of 40 (as opposed to 100) since 60 has already been ‘banked’. Cleary there are major benefits to a strategy whereby the buyer does not have to concern themselves with retracement following a strike being traded at, especially since the strike may well be considered a ‘big number’ and provide a resistance level.
Fig.2 shows the Call Banker price as a function of the S&P Index and time to expiry, where the lowest strike has still not been touched, with implied volatilities of 10% (left) and 20% (right). The lower ‘vol’ creates a lower probability of the strike being achieved which provides steeper profiles especially as days to expiry runs down to zero.
Fig.3 provides the same illustration but with two strikes having been touched so that 30 has now been ‘banked’.
Using this strategy provides an interesting example of the dexterity of binary options. In the above example the strikes are 25 ticks apart. Just suppose they were one tick apart so there were 100 different strikes. The strategy then provides for the strategy maxing out at the high in a particular range.
Evaluating the Call Banker
Call Banker = Payout1 x OneTouchCall1 + Payout2 x OneTouchCall2 + Payout3 x OneTouchCall3 + Payout4 x OneTouchCall4
When the lowest strike is hit then the OneTouchCall1 immediately equals 1, and the same for the other strikes until the highest strike is hit or the strategy expires.