Betting on Volatility | Volatility Bets

You believe the FTSE^® 100 will have a big move after the US payroll number is announced, so you decide to 'buy' £10 per point of both the 'FTSE^® to finish up more than 50 points' binary – our current price 8-11, and the 'FTSE^® to finish down more than 50' binary – our current price 6-9.

So, you have paid a total of 20 points (11+9) backing a 50-point FTSE^® move in either direction. If the US payroll number moves the FTSE^® as much as you expect and it finishes the day up more than 50 points or down more than 50 points you make 80 points:

100 (all binaries will finish at 100 if the statement becomes true)
- 20 (this is what you paid for a 50-point move in either direction)
= 80.

Because you 'bought' £10 per point, your total profit is £800 (80 x 10).

If you were proved wrong about the US payroll number and the FTSE^® did not finish up 50 points or down 50 points, you would have lost £200 (20 x 10) as all binaries will finish at 0 if the statement does not happen.

Either way you cannot lose more than £200 whatever happens to the FTSE^®. All binaries are strictly limited risk. In this above example you are 'buying volatility' on the FTSE^®, rather than simply 'buying' or 'selling' the FTSE^®, which you would do with a more traditional daily FTSE^® bet.

You can use binaries to benefit from markets when you expect there will be no movement at all.

The FTSE^® is currently trading at 5360 and the market is quiet. You don't believe the FTSE^® will move any higher than its current level, so you 'sell' £10 per point of the daily FTSE^® 5400 OneTouch at 40. By doing this, you have 'sold volatility' on the FTSE^®.

If the FTSE^® fails to reach more than 5400 by the end of the day, you will make £400 (10 x 40).

If the FTSE^® breaches the 5400 mark before it closes at 16.30, you will lose £600 (100 - 40 x 10).