Down and Out Binary Call Options K ≤ B

down and out binary calls K less than or equal to BDown and out binary call options K ≤ B is a fairly trivial strategy but is illustrated to draw a comparison to the one-touch put. When the strike is below the barrier the strike is rendered irrelevant.

Down and out binary call options K ≤ B (with strike below the barrier) is fundamentally a short position in a one-touch put with strike the same as the knockout barrier.

Down and Out Binary Call Options K ≤ B ≏ 100 – One Touch Put (K=B)

Figure 1 shows the profiles over time where there is a uniform increase in fair value as time to expiry decreases determining positive down and out binary call theta.

down-and-out binary call options k ≤ b

Fig.1 – Oil Down-and-Out Binary Call Options K ≤ B FV w.r.t. Implied Volatility

Figure 2 provides fair value profiles over a range of implied volatilities and here the fair value increases as implied volatility falls indicating negative down and out binary call vega throughout.

down-and-out binary call options k ≤ b

Fig.2 – Oil Down-and-Out Binary Call Options K ≤ B FV w.r.t. Implied Volatility

Both Figs. 1 & 2 show upward-sloping profiles indicating positive down and out binary call delta throughout indicating that this strategy is a directional play.

The decreasing gradient of the slope of the profiles indicates negative down and out binary call gamma throughout, that gamma clearly being most negative in the 0.1-day to expiry profile.

share

Spread the word. Share this post!

Leave A Reply