Hidden Factors When Evaluating Non-Binary OptionsAdded - Nov. 10, 2014 Financial
When you're getting into financial betting, one of the things you might be tempted to do is get into betting on different types of options without fully understanding what's going on with the payouts. Binary options are simple enough because you're betting on whether or not a value will stop above or below a certain threshold. For other types of options, however, the betting isn't always this simple, and you could be on the hook for a lot more in wins or losses depending on what type of bet you're placing and what type of option you're betting on.
For example, one type of option will allow you to bet a set amount per point of value. So a bet on this option might be a push if it ends at 57 for the day, and every point above or below that would be a win or loss of $5. Ending at 55 would mean a loss of $10, ending at 56 would mean a loss of $5, ending at 58 would mean a gain of $5, ending at 59 would mean a gain of $10, and so on. There will often be caps on the most and least you can win with these types of options, so everything at (for example) 70 and above would all be worth a $75 win while everything at (again, for example) 40 and below would all be worth a $75 loss.
What makes dealing with these types of options so tricky is that you have to take into account the chances for a lot of different possible outcomes, and this makes them a bit more advanced than binary options. If you use the same methods of analyzing other types of options as you do binary options, then you might do well for a while, but you will not have the same type of edge if you're a winning bettor.
The key is to break up the possible outcomes into small sections and to try to assign a percentage chance of the value ending in each section of the whole. In our example above, you might try to figure out the chances of it landing in 40 and below, 40-55, 55-70 and 70+. Then you can use those values to try to model what you think the overall value of the position will be, and time will show you how right your model is.