Binary Option Strangle/Box Spread Straddle Combination, US 500, Daily Contracts


#1

Darrell (or anyone), again would like some feedback on whether the following strategy is viable. The example is hypothetical, so for arguments sake assume the numbers I’ve provided are accurate. Again, it’s more a question on the strategy itself:

-Open a Box Spread Straddle position, with the SAME Floor and Ceiling, ~$100 of risk -Open a Binary Option Strangle position, Buy 2 Contracts at ~$75, Sell 2 Contracts at ~$25 (~$100 of risk) -When filled, place Take Profit Orders (for ~$100 profit) on BOTH legs of the Spread

If NEITHER of the Take Profit orders on the Box Spread get filled, the idea is to offset losses in the Box Spread Combination with profits in the Binary Option Strangle. If one of the Take Profit Orders get filled, the idea is to basically have a risk free trade on the Binary Option Strangle (The ~$100 profit from the Box Spread Straddle would offset the potential ~$100 loss from the Binary Strangle).

Also, there is the possibility of one of the legs of the Box Spread Straddle settling with some value, while both legs of the Binary Option Strangle settle ITM. Or the market reversing after one of the Take Profit on the Spreads executes, possibly giving some value to the remaining open leg on that Straddle.

Thoughts?


#2

The theory is sound the reality is the binaries will be closer and bring in less and both sides could lose.

You need live prices to really lay out the scenario

The markets are smart

Binaries are a delta of a call option same expiration/strike

Spreads also using black scholes like a call/put vanilla option.

Both using the same IV but one is all or nothing and one is variable.


#3

Yes i see that Darrell. My risk is that the Underlying finishes outside one of the Strikes on the Binaries i purchased, but not high enough to completely offset the losses on that Binary Straddle and make one of the legs on my Box Spread straddle sufficiently profitable. I think that’s what you’re alluding to. Thanks as always for your input.


#4

one side of straddle may be profitable but maybe not enough to cover the either side and the binary