Pricing ETH Binary Options
This repository contains a Jupyter notebook that provides an in-depth analysis of pricing Ethereum (ETH) binary options. Binary options are a type of financial derivative where the payoff is either a fixed amount of money or nothing at all. This notebook uses various financial models and sensitivity analyses to determine the prices of call and put binary options for Ethereum under different market conditions.
Introduction
Binary options offer a straightforward way to speculate on the price movements of an asset. In this repository, we focus on binary options for Ethereum (ETH), a popular cryptocurrency. The provided Jupyter notebook includes detailed computations, visualizations, and explanations to help users understand the factors affecting binary option prices. This can be valuable for traders, analysts, and anyone interested in financial derivatives.
Insights
Binary Option Prices
The notebook computes the prices of call and put binary options for Ethereum under different scenarios:
• Scenario 1:
• Call Option Price: 0.1873
• Put Option Price: 0.8127
• Scenario 2:
• Call Option Price: 0.0508
• Put Option Price: 0.9492
These prices indicate the likelihood of the options finishing in-the-money (ITM) based on the underlying assumptions and market conditions.
Volatility Annualization
A note in the notebook highlights that the annualization of volatility is specifically for hourly data and should not be used for daily data. This ensures accurate volatility calculations.
Visualizations
The notebook includes several plots to analyze the impact of different factors on the pricing of binary options:
• Volatility vs. Option Prices: Shows the relationship between volatility and option prices.
• Maturity vs. Option Prices: Illustrates the effect of maturity (time to expiration) on option prices.
• Spot Price vs. Option Prices: Depicts the influence of the spot price (current price) of Ethereum on option prices.
Further Pricing Results
Additional binary option prices are provided under different conditions:
• Case 1:
• Call Option Price: 0.2035
• Put Option Price: 0.7965
• Case 2:
• Call Option Price: 0.2127
• Put Option Price: 0.7873
General Observations
• Call vs. Put Option Prices: Generally, the put option prices are higher than the call option prices, indicating that the market may perceive a higher likelihood of Ethereum’s price decreasing or staying below the strike price.
• Sensitivity Analysis: The visualizations help in understanding how sensitive the option prices are to changes in volatility, maturity, and spot price. This is useful for traders and analysts to make informed decisions based on market conditions.
Usage
To use this notebook, simply clone the repository and open the Pricing ETH Binary Options.ipynb file in Jupyter Notebook or JupyterLab. Follow the cells to see the computations and visualizations, and modify the parameters as needed to explore different scenarios.
Conclusion
This repository provides a comprehensive guide to pricing Ethereum binary options, utilizing financial models and sensitivity analysis to offer insights into the behavior of these options under various market conditions. Whether you’re a trader, analyst, or financial enthusiast, this notebook offers valuable tools and knowledge to enhance your understanding of binary options.
Feel free to explore the notebook and modify it according to your needs. Contributions and suggestions are welcome!