In the Binary Options Each-Way Tunnel, a volatility bet is made with three different settlement levels, excluding dead heats, using two additional strikes.
Example: How does the Each-Way Tunnel strategy work in Binary Options?
In the Each-Way Tunnel strategy, such as with the Hang Seng Index shown below, the option settles at zero outside the two strikes, at 100 within the two inside strikes, and at 40 between the inside and outside strikes. For the buyer who assumes the underlying is between the two inside strikes but guesses a little wrong, the binary options for each-way Tunnel offer a second alternative.
How to navigate risk in Each-Way Tunnels?
To navigate risk in Each-Way Tunnels, traders should note that the binary options each-way tunnel generally has low Put Gamma and Put Delta. The profile from 1 day to expiration is rounded and has not yet taken on the appearance of a “head and shoulders” expiration. When the underlying is near the two inner strikes, the “head and shoulders patterns” profile becomes more pronounced at 0.1 days to expiration, increasing the risk for the trader and market maker. As you can see, Each-way Tunnels can not considered to be risk-free binary trades.
