Hi Darrell,
I know you have said that over time, the delta (the price) of all binaries are perfectly priced.
Is there a time frame, especially where itm binaries, where you have seen over time this is especially true?
Longer or shorter timeframes?
Thanks,
Rick
Not sure what you mean by perfectly priced. I simply mean it uses a black scholes model of delta to establish the price. Its not a on or off thing its an algo that does it around the clock. So I’m not sure what your asking.
Hi,
It just seems that some timeframes, such as super short time frames, are inaccurate relative to the expected winning percentage.
I’m wondering if there is a certain contract length you have seen as more accurate over time, perhaps during sessions that don’t get skewed badly due to trader sentiment?
Not sure what you mean by the expected win. A binary is a delta of a call option the mid price is the approximate delta (if IV is the same). Delta can be used as a ROUGH estimation of probability of expiring ITM but that is not what i mean by perfect pricing. I am referring to the black scholes model of pricing the delta of a call = a binary price.
To see how “accurate the pricing” model of using price as probability you would need to do at least 100 trades at the same price and hold them to expiration. Ive done this and its spot on. Ive seen no variance in length impacting accuracy.
The only skew by trader sentiment is if 100’s of people are piling on a strike (like someone’s unmanaged signal service) and the market maker has to skew the iv in order to attract traders to take the opposing side to offset risk on a specific strike. This can be seen by seeing if the price of the exact same strike before and after a strikes expiration are both lower/higher than the strike in question. This is normal for any market maker who is obligated to provide liquditiy