Spreads on Spread Betting

While I never considered the spreads on retail betting sites to be fair or even remotely liquid, I thought they should be better then this:

Demo Portfolio

Demo Portfolio

I tried a little experiment, to synthetically recreate the payoff of a Touch Option by utilizing a directional Range Expiry with skinny range. IOW in a bear signal, create a range bet a .01 wide and pay very low premium. My hope was to gain multiples on movement to neutrality. However as a friend explained to me, I was mistakingly assuming convexity or in other words, that the Range bet with such a small range would be sensitive or react to delta movements in my favor. As you can see there are worse problems then just convexity with this type of bet.

Advertisements

~ by largecaptrader on July 20, 2009.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

 
%d bloggers like this: