Trying to find a method to determine how much a given binary ‘should’ move for each point move in the underlying for various products.
Knowing this would help estimate a target price for the binary based on target for the underlying in determining if a position in the binary should be taken.
From observation, there is not a consistent correlation in underlying move to binary move. It’s somewhat consistent for ATM-ish strikes (not clear how many), but breaks down as underlying price moves away (not clear how far) from the strike and of course is skewed as the binary approaches extremes (15-ish or 85-ish).
This is very difficult. As the binary must end at 100 or 0 ITM or OTM so its price will fluctuate rapidly with no movement in the underlying simply based on time passing. An ITM will increase in value rapidly and an OTM wll decrease reapidly. In the last 15 minutes or so you can see swings from 10 to 90 (hence why they can be traded in flat or volatile markets). Then add in underlying market movement and it can fluctuate even more. Also there is the added factor of implied volatility.
So even if you new the exact formula for how much a binary would move (which you can do by using the binary price ladder) you still have to account for time passing and changes in implied volatility as this would change the number every second.
You could calculate the price move impact using the price ladder (see tutorial).
You can make a theoretical model based on the time impact.
However again IV can change the entire model
The one thing you can count on (besides the 0 or 100 value at expiration) is it will be at 50 when at the strike regardless if 20 hours or 20 minutes from expiration (give or take a few ticks for bid/ask spread). This is your edge that you know you can use - ie buy 15 - sell at 47 etc…
I cover this in more detail in the nadex tutorials on binaries - feel free to explore them to learn more.
