December 18, 2024 • 26 mins
On this episode, Mark and Dan take a deep dive into binary options
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
You're listening to the Options Insider Radio Network, the home of the Options Podcast.
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(00:52):
at theoptionsinsider.com.
You wanted it.
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A radio program that helps teach you options trading inside and out, basic to complex.
(01:18):
This is Options Boot Camp.
Whether you want to learn how to protect your portfolio, generate income, or even become
a master of volatility, your Options Boot Camp drill instructors, Mark Longo and Dan
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(02:05):
So don't change your strategy, change your platform, and see the difference in your bottom
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And it's the only options trading platform where you can earn a rebate on every contract
traded.
To learn more, please visit public.com/optionsbootcamp.
(02:26):
Paid for by Public Investing, options not suitable for all investors and carry significant risk.
Full disclosures and podcast description.
Fall in boot.
It's time to get into peak options trading shape.
It's time for Options Boot Camp.
All right, everybody, let's do it.
(02:49):
Episode two of our double header here for OBC.
My name, of course, Mark Longo from the options insider.com as well as from the network of
how much all of you folks are binging.
If you're saying double header, what's he talking about?
Well, of course, if you're listening to us live on the pro, you got episode one already
listening to episode two right now in your air holes.
You're listening on demand.
(03:09):
It's just the next episode, same bat time next week on the network.
Of course, if you want to check out the pro, see what all the fun is about.
Get two additional exclusive shows, do a lot of great learning and some great unusual activity
analysis and some great trade ideas as well.
The options insider.com/pro is the place to go as we're coming up against it already.
(03:29):
We had so much fun on episode one and I got to get to the futures rundown after this show.
So let's welcome on Dan, the man from Frankfurt, aka the black-headed one himself.
Passarelli from MTM.
Mr. P, welcome back to the show, sir.
It's been so long.
Hey, man, it is been, it seems like it's been forever ago, Mark, but then again, it seems
(03:51):
like it's just been minutes ago.
I know you missed me, Dan.
Luckily, we got more grist for the mill as we head right on into a little bit of basic
training.
All right, boot, it's time to get line.
What you're going to do is learn.
You're going to learn how options work.
Do you hear me?
Yes, sir.
You're going to learn options trading inside and out.
(04:12):
Basic to complex.
There will be no failures.
Do you hear me?
Yes, sir.
Pull in.
Prink bear to learn.
Yes, sir.
All right, everybody.
Welcome to the basic training, the portion of the show where we break down some basic
options, concept or technique or product and explain what the heck it is and how you can
(04:36):
utilize it in your portfolio.
And Dan, today's topic was inspired by a listener question we got a few episodes ago.
I love this handle.
Jose Josie.
Jose Josie says, can Mark and Dan please spend some time explaining binary options and how
(04:57):
they work and differ from traditional options?
Thanks.
Well, you know, Dan, a very timely question.
We talked about this a lot on our big election night spectacular.
So if you want to have four hour, not quite all binary discussion, but they got in there
a lot.
Make sure you're checking out the election night spectacular.
If you missed it, listen, there's another reason you should be listening to the full
network.
(05:18):
It's available there in the archive.
Just scroll back a little bit.
Dan join me on that.
So it was very much a mini options boot camp there.
Dan, when I say the term binary options to you, what leaps to mind, sir?
You know what leaves mind is when binary options, well, when, um, oh crap.
What's what's the name of that?
Uh, place that Dan cook worked.
(05:39):
Uh, and Nate, Nate X.
Oh, Nate X.
Yeah.
Yeah.
When Nate X first started, I think it was a previous iteration of Nate X called like
street hedge or something weird.
I don't know, but I was actually, it was hedge street.
Yeah.
Yeah.
Yeah.
Yeah.
And then they had CBO these options Institute teaching options and, um, they, they came
(06:03):
in and they were like, I don't know.
I think they were just trying to get some advice on how to teach what, how these work.
And so me and a couple other people at the Institute, um, you know, we kind of looked
at it and worked on it and gave some thoughts on it.
But then they had this promotion and this is like, oh my gosh, this is like probably
(06:28):
2004 and they had this promotion and it was open an account, fund it, make a profitable
trade and we're going to give you an iPod nano or something.
It was like back then.
Yeah.
Yeah.
(06:48):
It was that iPod that like clipped to your shirt or whatever you want to clip it to.
Um, and so I opened an account with a hundred bucks.
I made this extremely high probability trade.
I closed it for a profit of a dollar and I got the iPod nano and I closed the account.
(07:08):
So what you're saying is you scammed head street.
You're the reason they're no longer around.
I totally did.
That's awesome.
You know, it's funny you bring up head street.
I haven't thought about that name in forever, but I was there and it was the FIA Boca conference.
You're right.
It probably was around that 2004 timeframe.
(07:28):
It was definitely during the, uh, the Bush junior administration.
I recall it because their defense department at that time dance, you'll recall, got into
a whole bunch of trouble for creating a hypothetical terrorism futures market after 9/11.
You remember that?
No.
So they got slammed even though they were just using it at try to predict the next event.
(07:49):
There was some sound theory behind it, but the PR behind it was awful.
It seemed like people were trying to speculate on terrorist events.
So they got just taken to the woodshed and it was just bad PR in the immediate aftermath
of that.
Dan is when head street decided to announce their effectively event futures and people
are event contracts and people were freaking out.
(08:10):
I remember even at the briefing, these are terrorism futures.
What are you doing?
So they got a lot of pushback right away.
Uh, so yeah, it was a rough time for them.
They of course merged, I should say into nadex, which we'll get into all that fun in a second.
We got so excited going about Dan ripping off, ripping off head streets for an iPod nano.
We forgot to explain what the hell a binary option is.
(08:30):
So let's start there and listen to it.
That's what I get for asking Dan to play word association with me.
It takes me down a wild rabbit hole of scammery.
All right, let's go.
Let's go.
What the hell are we talking about?
What is all this madness?
What are binary options?
You're probably familiar with regular options.
Listening as you've been listening to this show for a while, if you're new, welcome.
But of course, regular options have things like, you know, a Theta Vega, all these things
(08:52):
we talked about a million times.
They have intrinsic value.
They have time premium.
They have volatile, all these things that you use to kind of work together to make up
the options price.
You don't have to throw all that out the window, but you throw most of it out the window when
you're talking about binaries.
Binaires as the name implies is really kind of an on or off event type contract.
(09:15):
You are speculating on hedging against whether a particular event could be the price of crude
oil getting above a certain price could be as in recent history, an election coming to
pass whether that event happens or not.
And if the event happens, that contract will go out at full price.
If it doesn't happen, that contract will go out worthless.
(09:38):
That's pretty much the gist of it.
Now, the pricing of these is kind of interesting.
Dan mentions Nadex/Headstreet.
They were the first that I saw that really come up.
Maybe this convention would use elsewhere.
And for a long time, by the way, listeners, when I say binary options, if Dan had asked
me that question in reverse, he said, what is your word association?
I would have said scammers and fraudsters because for a long time, binary options were
(10:00):
exclusively the domain of international scammers and hucksters because they weren't legal here
in the US.
So it was a bunch of Estonian and all these other places, African options exchanges, quote
unquote, that exclusively listed.
Binary options and were there just to rip you off.
So it was a very shady area.
Along came Headstreet, which became eventually Nadex.
(10:21):
They were the first really regulated, listed, approved binary venue you could trade on here
in the US.
And they had real products, things about indexes and crude oil and everything else out there.
And they were on some of our early shows years ago out there.
So they had some interesting ideas.
They were a great gateway drug for folks who were on the retail side, wanted to dip their
toes in options or futures, maybe didn't have the capital to do so.
(10:43):
Binaires are a great way to do that.
Another good thing about binaries is they're usually pretty cheap.
Again, I mentioned that probability being the genesis of the price.
Most of these binaries are priced from effectively zero to 100.
And the price is going to fluctuate based on the perceived probability of that event
coming to pass.
Let's say, for example, you're going to trade a binary for some event and the probability
(11:06):
of that event coming to pass is probably, let's say, around 40 percent, according to
your analysis going to the market's analysis.
So you know what?
The price of that binary is going to be probably 35 cents at 45 cents, somewhere around that
40 percent probability level.
So the prices are very intuitive.
Most binaries are going to be priced from a penny all the way up to a dollar, a dollar
(11:26):
of course being 100.
That is the event has effectively come to pass.
A penny or zero means the event has not come to pass.
That's what you're dealing with.
At some point in this options lifespan, it will be worth zero or it will be worth 100.
There's no getting around that.
So that's what you're dealing with when it comes to binaries.
Now, Dan mentioned, of course, Head Street that became Nadex and that was it for a long
(11:47):
time.
The game has changed in recent years for binaries.
The first real big change we saw in the U.S. was CME adding their event contracts.
These came online back in September of 2022.
So that was an interesting thing because for a long time, I know behind the scenes talking
to both of these venues that CME wanted nothing to do with the binaries and the Nadex folks
(12:09):
and everything else like that because it was the domain of scammers.
Then lo and behold, CME listed their own binary contracts.
So it kind of legitimized them.
For some folks out there who were a little bit skeptical, they added it with 11 contracts.
They've since expanded.
You can now go to CME and trade binaries on S&P daily, S&P quarterly and yearly, NASDAQ
(12:29):
daily quarterly and yearly, Russell 2000, the Euro USD, the E-Mini Dow, gold, silver,
copper, WTI, NatGas and Bitcoin.
So all binaries, all event contracts on products that CME currently lists.
So it's a way to drive volume back and forth between their own products.
But it's interesting thing.
(12:50):
It's a regulated entity.
You've heard of CME.
They're not going anywhere.
Now I say most binaries priced between zero and 100.
CME decided to do their own thing.
I have no idea why.
They listed them as one to 20.
So they were one fifth size.
So if you wanted to back into the probability, let's say the price was five cents, you had
to multiply times five to get the actual probability, which was 25%, which was an idiotic way to
(13:14):
do that.
They realized that.
They have now fixed that.
They are now priced one to 100 like every other binary on the planet.
It was just a bad look and it kind of hurt their volume.
I think things are growing now.
And you know, another thing to mention, I said binaries are traditionally, they've been
viewed through the lens of very short term trade, sometimes as short as a few minutes.
(13:35):
That is now changing with this newer iteration of binaries.
I mentioned NASDAQ yearlies.
I mentioned NASDAQ quarterlies.
Those are obviously longer term trades.
A lot of the election stuff that we just talked about and we'll talk about again in a few
minutes were obviously much longer term trades as well.
So the time frame for binaries has changed quite a bit as well.
Fast forward to this year, listeners, and the binary game changed again.
(13:59):
I remember talking to the NAIDEX folks a long time ago saying, man, you guys ever going
to have products on things outside of the norm, let's say sporting events or elections.
That was a big thing.
And they all said we would love to, but the CFTC would never allow it.
Well, that game changed this year.
You may have heard of Kalshi.
(14:19):
They were one of those binary platforms.
They were offering congressional race binaries.
CFTC blocked it.
Well, another appeals court came in and lifted that ban in October of this year, which is
why all of a sudden we had an explosion of events slash election binary markets just
(14:41):
in time for the election here in the US.
So Kalshi benefited from that.
All of a sudden they had an election market.
We saw Thomas Petterfly and I.B. Piggyback on that ruling.
They launched forecast EX.
So all of a sudden you had two approved listed venues here in the US that you could actually
trade binaries on the election, which is wild.
Never existed before here in the US.
(15:03):
Of course, if you're international, you had Poly Market, that one still not available
to domestic listeners out there.
A couple of things to mention about these markets, obviously they're going to be longer
term if you listened to our election night spectacular, you know that a Petterfly's markets
don't pay off until January 7th.
There's a reason for that.
(15:24):
We all know what happened January 6th, four years ago.
So something to bear in mind if you thought you're going to get paid the very next day
on the election, you're kind of sitting on a contract that's worth pretty much almost
full value.
I'm sure Trump on these platforms is 99 cents right now as opposed to a dollar or a hundred.
But just something to bear in mind.
Also another weird nuance if you're trading the forecast EX binaries, it's a yes/no market.
(15:49):
So you could buy the binaries.
Most people think of binaries, will an event happen?
Yes or no.
Yes being of course the way most people view it.
So if it's going to happen, they buy the binary.
If it doesn't, they don't.
You can buy a no binary on forecast EX as well, which is a little counterintuitive for
people.
So seeing those markets fluctuate was kind of interesting.
Also there is no way to close by selling on forecast EX.
(16:13):
You have to if you buy the yes, let's say you bought the yes on Trump winning, it is
now trading 99 cents at a buck.
I'm assuming you can't sell it at 99 cents.
You have to buy the no to effectively exit that.
That's the closing transaction.
So that's a little bit weird.
Just something to bear in mind.
These marketplaces are still kind of Wild West out there.
(16:34):
All right, Dan, I laid down a lot in terms of binaries.
What else you want to add for our listeners?
Jeez Louise.
Yeah.
You know, I wonder how popular they're going to become because this year, you know, because
they actually are approved and this was the first big presidential cycle.
(16:59):
And you know, they were they were talked about by a lot of people and in the media just because
it's a really great place to get percent likelihood of something happening based on the general
public.
Now, that's not what's standing all the stuff we talked about on election night and all
that, which were some really great points.
People should probably go back and review that if you haven't already.
(17:23):
But you know, in that regard, it kind of they kind of are marketing themselves a little
bit.
It's probably really smart marketing that they listed them on these pretty controversial
events.
So the presidential race should not be controversial.
However, I guess it's better than the marketing concept that I came up with for them years
(17:50):
ago.
But my idea was binary options, not just for Cypriot gangsters anymore.
It never really caught on, though.
Yeah, no, that was.
I remember talking to your buddy, you mentioned there earlier, and he told me he was going
to a conference in Cyprus.
I was like, what kind of conferences are in Cyprus?
Oh, yeah, the binary options conference, because that's the only place that they were legal.
(18:15):
So yes, listen, this was the exclusive domain of scammers until not that long ago.
And now fast forward a few years.
And now, Dan, I think if there's one takeaway from this episode today is that we have not
seen the last of binary options, exchanges and products.
Everyone in the business listeners saw the success and the interest in these election
(18:40):
markets this cycle.
I've already talked to people in the exchange space here in the options world.
They are all busy feverishly working to spin up their own alternatives on this.
So we have not seen the last.
Dan, just think about it.
In the last election cycle and now just four years, we had the onset of zero day options
(19:01):
and election binaries.
And most of that was just in the last two years and in the last two months.
We have another four years to go.
Who knows what wild moonshot AR, VR, AI products will have by this time in four years, Dan?
What do you think?
Yeah, I know, man.
It's very, very interesting.
(19:24):
Oh, gosh.
We've talked a lot about this stuff.
I don't want to open up a whole big can of worms and also point out that online gambling
was a thing and then got banned and then became a thing.
And now is like, jeez, Louise, if you have a player's card at any casino, that's all
(19:47):
they're trying to push on you.
And they're taking out tables and putting in kiosks to gamble.
And I'll tell you, there's a lot of crossover between some of the things we're talking about
here today and that.
That there is listeners as we keep on rolling into a little bit of your mail call.
(20:08):
Time to look at questions submitted by our listeners.
All right, listen, as we are coming up against that, I do have to get to another show in
(20:34):
a few minutes.
Listen, there's no rest for the wicked here.
I want to get to this question from Travis.
He had a question about our app.
He says, I've been listening to the options boot camp from the beginning.
Well, thank you, Travis.
You're one of the many who goes back to episode one.
It's a lot of listening.
We appreciate your effort, though, he says.
And Mark mentions an options insider app.
(20:54):
Is this still available?
I have looked on the Play Store and I can't find it.
Thank you.
Well, short answer is it's not available right now.
Travis neither the iOS or the Google Play version are available.
It's in the process of being updated.
So to do that, they have to actually remove it from the store.
It's a weird thing.
We don't build the app.
(21:15):
We have developers who build that and maintain it for us.
And so in order to do that, they have to take it out to update it and resubmit it.
So it's going to be out of the stores for a little bit.
But I'll let you know as soon as the update is finished and we have a brand spanking new
shiny version of the app.
I do recommend the app for those of you who want to go back to episode one.
It is the best way to get access to all of our stuff.
(21:36):
Of course, you can go to our website as well.
If you're going through iTunes or some of the other stores, Spotify, whatever, they
might limit you to, let's say, I don't know, 500 episodes or something like that for some
of our shows.
And some of our shows go a lot longer than that.
So just bear in mind, if you want the whole kit and caboodle, the whole fire hose, the
app is a great way to do it.
If you already have the app, congratulations, it's still running.
You're fine.
(21:57):
But you can't go and download it new right now.
We'll let you know.
It should be pretty soon when it's available again for the update.
So Travis, great question for sending in that great question.
Our producers will reach out to you with something fun for you.
That is a great question.
But yes, just something to bear in mind.
A lot of you have reached out with that same question.
Where's your app?
I want to check it out.
It'll be coming back soon.
We'll let you know soon, listeners, when that app is available.
(22:19):
All right, listen, it is going to do it for us this week.
Kind of short and sweet this week.
We have a lot going on.
We are recording this, of course, as part of a double header.
So I do need to keep rolling into the future's rundown in a few minutes.
So if you're not done with Dan's, you want Dan Squared, Dan the Man, Gramso, will be joining
(22:39):
me in just a few minutes.
If you're listening live on the Pro to talk futures.
If you're listening after the fact, that'll be hitting your device of choice whenever
you're listening to your favorite podcast out there.
Of course, if you want to join us on the Pro, the optionsinsider.com/pro is the place to
go to learn more.
And of course, keep supporting the folks who support these shows that have been coming
(23:01):
to you since 2013 public.com/optionsbootcamp.
It's really easy.
All you have to do is go to that URL, let some know you're coming from our show.
And guess what?
You get more episodes of Options Bootcamp in your hot little air holes.
It's a win-win for everybody.
Public.com/optionsbootcamp.
And Dan, where should they go if they want some MTM goodness?
(23:25):
Maybe they too want to learn how to scam a iPod Nano from a binary options exchange.
I'll be able to help you out.
I know all the tricks.
Make your way on over to MarketTaker.com to tease and row.
And you can join a chat room.
You can DM me personally there or coaches or some of our other students you can interact
with, share trade ideas.
(23:46):
And we've got some free classes there as well.
So that's MarketTaker.com.
There you go, MarketTaker.com.
Don't forget the second T, which as the robots reminded us last week, Dan, stands for theta.
Market.com to learn more.
That's going to do it for us here on the show today.
Not on the network though.
No rest for the wicked listeners because I am off immediately to talk about all things
(24:10):
futures.
And I'll be back again tomorrow with our usual double header of the option block as well
as this week in futures options.
And then back again Friday with volatility views.
And then of course for all you cool cats in the pro one final time to talk all sorts of
wild unusual activity with options oddities.
You kind of want to check that show out.
(24:31):
It's definitely a banger.
It's been a fun one.
A lot of great trading ideas coming across the screens on that show.
Of course, go to the pro to learn about that.
TheOptionsInsider.com/pro.
Then we're back again next week.
Same bat time.
Same bat channel.
Another episode of Options Boot Camp.
Stay safe out there everybody.
(25:19):
Your savings are automatically applied.
So don't change your strategy.
Change your platform and see the difference in your bottom line.
No commissions.
No per contract fees.
And it's the only Options trading platform where you can earn a rebate on every contract
traded.
To learn more please visit public.com/optionsbootcamp.
(25:42):
Paid for by Public Investing.
Options not suitable for all investors and carry significant risk.
Full disclosures and podcast description.
You're listening to the Options Insider Radio Network, the home of the Options Podcast.
For more quality options programs visit the optionsinsider.com or search for Options Insider
(26:06):
Radio Network in your podcast provider of choice.
Listeners can also access all of our programming through our mobile app available on the iTunes
and Google Play stores.
Most programs are also available via live stream at mixler.com/options-insider.
That's mixlr.com/options-insider.
(26:29):
Don't forget to follow along with your favorite programs and submit your own questions for
the hosts at twitter.com/options, stocktwits.com/options, facebook.com/theoptionsinsider or via questions
at theoptionsinsider.com.
You're listening to the Options Insider Radio Network, the home of the Options Podcast.
For more quality options programs, visit theoptionsinsider.com or search for Options Insider Radio Network
in your podcast provider of choice.
Listeners can also access all of our programming through our mobile app available on the iTunes
(00:22):
and Google Play stores.
Select programs are also available via livestream at mixler.com/options-insider.
That's mixlr.com/options-insider.
Don't forget to follow along with your favorite programs and submit your own questions for
the hosts at twitter.com/options, stocktwits.com/options, facebook.com/theoptionsinsider, or via questions
(00:52):
at theoptionsinsider.com.
You wanted it.
You got it.
A radio program that helps teach you options trading inside and out, basic to complex.
(01:18):
This is Options Boot Camp.
Whether you want to learn how to protect your portfolio, generate income, or even become
a master of volatility, your Options Boot Camp drill instructors, Mark Longo and Dan
Pasarelli will break it all down for you.
If you trade options, you've got to ask yourself, why would you choose an options trading platform
(01:41):
that puts investors first?
At public.com, there are no commissions or per contract fees.
But more importantly, it's the only platform where you can earn a rebate on every single
contract traded.
That means you can save on your options trading costs and keep more of your capital in play.
Whenever you trade options on public, your savings are automatically applied.
(02:05):
So don't change your strategy, change your platform, and see the difference in your bottom
line.
No commissions, no per contract fees.
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(02:26):
Paid for by Public Investing, options not suitable for all investors and carry significant risk.
Full disclosures and podcast description.
Fall in boot.
It's time to get into peak options trading shape.
It's time for Options Boot Camp.
All right, everybody, let's do it.
(02:49):
Episode two of our double header here for OBC.
My name, of course, Mark Longo from the options insider.com as well as from the network of
how much all of you folks are binging.
If you're saying double header, what's he talking about?
Well, of course, if you're listening to us live on the pro, you got episode one already
listening to episode two right now in your air holes.
You're listening on demand.
(03:09):
It's just the next episode, same bat time next week on the network.
Of course, if you want to check out the pro, see what all the fun is about.
Get two additional exclusive shows, do a lot of great learning and some great unusual activity
analysis and some great trade ideas as well.
The options insider.com/pro is the place to go as we're coming up against it already.
(03:29):
We had so much fun on episode one and I got to get to the futures rundown after this show.
So let's welcome on Dan, the man from Frankfurt, aka the black-headed one himself.
Passarelli from MTM.
Mr. P, welcome back to the show, sir.
It's been so long.
Hey, man, it is been, it seems like it's been forever ago, Mark, but then again, it seems
(03:51):
like it's just been minutes ago.
I know you missed me, Dan.
Luckily, we got more grist for the mill as we head right on into a little bit of basic
training.
All right, boot, it's time to get line.
What you're going to do is learn.
You're going to learn how options work.
Do you hear me?
Yes, sir.
You're going to learn options trading inside and out.
(04:12):
Basic to complex.
There will be no failures.
Do you hear me?
Yes, sir.
Pull in.
Prink bear to learn.
Yes, sir.
All right, everybody.
Welcome to the basic training, the portion of the show where we break down some basic
options, concept or technique or product and explain what the heck it is and how you can
(04:36):
utilize it in your portfolio.
And Dan, today's topic was inspired by a listener question we got a few episodes ago.
I love this handle.
Jose Josie.
Jose Josie says, can Mark and Dan please spend some time explaining binary options and how
(04:57):
they work and differ from traditional options?
Thanks.
Well, you know, Dan, a very timely question.
We talked about this a lot on our big election night spectacular.
So if you want to have four hour, not quite all binary discussion, but they got in there
a lot.
Make sure you're checking out the election night spectacular.
If you missed it, listen, there's another reason you should be listening to the full
network.
(05:18):
It's available there in the archive.
Just scroll back a little bit.
Dan join me on that.
So it was very much a mini options boot camp there.
Dan, when I say the term binary options to you, what leaps to mind, sir?
You know what leaves mind is when binary options, well, when, um, oh crap.
What's what's the name of that?
Uh, place that Dan cook worked.
(05:39):
Uh, and Nate, Nate X.
Oh, Nate X.
Yeah.
Yeah.
When Nate X first started, I think it was a previous iteration of Nate X called like
street hedge or something weird.
I don't know, but I was actually, it was hedge street.
Yeah.
Yeah.
Yeah.
Yeah.
And then they had CBO these options Institute teaching options and, um, they, they came
(06:03):
in and they were like, I don't know.
I think they were just trying to get some advice on how to teach what, how these work.
And so me and a couple other people at the Institute, um, you know, we kind of looked
at it and worked on it and gave some thoughts on it.
But then they had this promotion and this is like, oh my gosh, this is like probably
(06:28):
2004 and they had this promotion and it was open an account, fund it, make a profitable
trade and we're going to give you an iPod nano or something.
It was like back then.
Yeah.
Yeah.
(06:48):
It was that iPod that like clipped to your shirt or whatever you want to clip it to.
Um, and so I opened an account with a hundred bucks.
I made this extremely high probability trade.
I closed it for a profit of a dollar and I got the iPod nano and I closed the account.
(07:08):
So what you're saying is you scammed head street.
You're the reason they're no longer around.
I totally did.
That's awesome.
You know, it's funny you bring up head street.
I haven't thought about that name in forever, but I was there and it was the FIA Boca conference.
You're right.
It probably was around that 2004 timeframe.
(07:28):
It was definitely during the, uh, the Bush junior administration.
I recall it because their defense department at that time dance, you'll recall, got into
a whole bunch of trouble for creating a hypothetical terrorism futures market after 9/11.
You remember that?
No.
So they got slammed even though they were just using it at try to predict the next event.
(07:49):
There was some sound theory behind it, but the PR behind it was awful.
It seemed like people were trying to speculate on terrorist events.
So they got just taken to the woodshed and it was just bad PR in the immediate aftermath
of that.
Dan is when head street decided to announce their effectively event futures and people
are event contracts and people were freaking out.
(08:10):
I remember even at the briefing, these are terrorism futures.
What are you doing?
So they got a lot of pushback right away.
Uh, so yeah, it was a rough time for them.
They of course merged, I should say into nadex, which we'll get into all that fun in a second.
We got so excited going about Dan ripping off, ripping off head streets for an iPod nano.
We forgot to explain what the hell a binary option is.
(08:30):
So let's start there and listen to it.
That's what I get for asking Dan to play word association with me.
It takes me down a wild rabbit hole of scammery.
All right, let's go.
Let's go.
What the hell are we talking about?
What is all this madness?
What are binary options?
You're probably familiar with regular options.
Listening as you've been listening to this show for a while, if you're new, welcome.
But of course, regular options have things like, you know, a Theta Vega, all these things
(08:52):
we talked about a million times.
They have intrinsic value.
They have time premium.
They have volatile, all these things that you use to kind of work together to make up
the options price.
You don't have to throw all that out the window, but you throw most of it out the window when
you're talking about binaries.
Binaires as the name implies is really kind of an on or off event type contract.
(09:15):
You are speculating on hedging against whether a particular event could be the price of crude
oil getting above a certain price could be as in recent history, an election coming to
pass whether that event happens or not.
And if the event happens, that contract will go out at full price.
If it doesn't happen, that contract will go out worthless.
(09:38):
That's pretty much the gist of it.
Now, the pricing of these is kind of interesting.
Dan mentions Nadex/Headstreet.
They were the first that I saw that really come up.
Maybe this convention would use elsewhere.
And for a long time, by the way, listeners, when I say binary options, if Dan had asked
me that question in reverse, he said, what is your word association?
I would have said scammers and fraudsters because for a long time, binary options were
(10:00):
exclusively the domain of international scammers and hucksters because they weren't legal here
in the US.
So it was a bunch of Estonian and all these other places, African options exchanges, quote
unquote, that exclusively listed.
Binary options and were there just to rip you off.
So it was a very shady area.
Along came Headstreet, which became eventually Nadex.
(10:21):
They were the first really regulated, listed, approved binary venue you could trade on here
in the US.
And they had real products, things about indexes and crude oil and everything else out there.
And they were on some of our early shows years ago out there.
So they had some interesting ideas.
They were a great gateway drug for folks who were on the retail side, wanted to dip their
toes in options or futures, maybe didn't have the capital to do so.
(10:43):
Binaires are a great way to do that.
Another good thing about binaries is they're usually pretty cheap.
Again, I mentioned that probability being the genesis of the price.
Most of these binaries are priced from effectively zero to 100.
And the price is going to fluctuate based on the perceived probability of that event
coming to pass.
Let's say, for example, you're going to trade a binary for some event and the probability
(11:06):
of that event coming to pass is probably, let's say, around 40 percent, according to
your analysis going to the market's analysis.
So you know what?
The price of that binary is going to be probably 35 cents at 45 cents, somewhere around that
40 percent probability level.
So the prices are very intuitive.
Most binaries are going to be priced from a penny all the way up to a dollar, a dollar
(11:26):
of course being 100.
That is the event has effectively come to pass.
A penny or zero means the event has not come to pass.
That's what you're dealing with.
At some point in this options lifespan, it will be worth zero or it will be worth 100.
There's no getting around that.
So that's what you're dealing with when it comes to binaries.
Now, Dan mentioned, of course, Head Street that became Nadex and that was it for a long
(11:47):
time.
The game has changed in recent years for binaries.
The first real big change we saw in the U.S. was CME adding their event contracts.
These came online back in September of 2022.
So that was an interesting thing because for a long time, I know behind the scenes talking
to both of these venues that CME wanted nothing to do with the binaries and the Nadex folks
(12:09):
and everything else like that because it was the domain of scammers.
Then lo and behold, CME listed their own binary contracts.
So it kind of legitimized them.
For some folks out there who were a little bit skeptical, they added it with 11 contracts.
They've since expanded.
You can now go to CME and trade binaries on S&P daily, S&P quarterly and yearly, NASDAQ
(12:29):
daily quarterly and yearly, Russell 2000, the Euro USD, the E-Mini Dow, gold, silver,
copper, WTI, NatGas and Bitcoin.
So all binaries, all event contracts on products that CME currently lists.
So it's a way to drive volume back and forth between their own products.
But it's interesting thing.
(12:50):
It's a regulated entity.
You've heard of CME.
They're not going anywhere.
Now I say most binaries priced between zero and 100.
CME decided to do their own thing.
I have no idea why.
They listed them as one to 20.
So they were one fifth size.
So if you wanted to back into the probability, let's say the price was five cents, you had
to multiply times five to get the actual probability, which was 25%, which was an idiotic way to
(13:14):
do that.
They realized that.
They have now fixed that.
They are now priced one to 100 like every other binary on the planet.
It was just a bad look and it kind of hurt their volume.
I think things are growing now.
And you know, another thing to mention, I said binaries are traditionally, they've been
viewed through the lens of very short term trade, sometimes as short as a few minutes.
(13:35):
That is now changing with this newer iteration of binaries.
I mentioned NASDAQ yearlies.
I mentioned NASDAQ quarterlies.
Those are obviously longer term trades.
A lot of the election stuff that we just talked about and we'll talk about again in a few
minutes were obviously much longer term trades as well.
So the time frame for binaries has changed quite a bit as well.
Fast forward to this year, listeners, and the binary game changed again.
(13:59):
I remember talking to the NAIDEX folks a long time ago saying, man, you guys ever going
to have products on things outside of the norm, let's say sporting events or elections.
That was a big thing.
And they all said we would love to, but the CFTC would never allow it.
Well, that game changed this year.
You may have heard of Kalshi.
(14:19):
They were one of those binary platforms.
They were offering congressional race binaries.
CFTC blocked it.
Well, another appeals court came in and lifted that ban in October of this year, which is
why all of a sudden we had an explosion of events slash election binary markets just
(14:41):
in time for the election here in the US.
So Kalshi benefited from that.
All of a sudden they had an election market.
We saw Thomas Petterfly and I.B. Piggyback on that ruling.
They launched forecast EX.
So all of a sudden you had two approved listed venues here in the US that you could actually
trade binaries on the election, which is wild.
Never existed before here in the US.
(15:03):
Of course, if you're international, you had Poly Market, that one still not available
to domestic listeners out there.
A couple of things to mention about these markets, obviously they're going to be longer
term if you listened to our election night spectacular, you know that a Petterfly's markets
don't pay off until January 7th.
There's a reason for that.
(15:24):
We all know what happened January 6th, four years ago.
So something to bear in mind if you thought you're going to get paid the very next day
on the election, you're kind of sitting on a contract that's worth pretty much almost
full value.
I'm sure Trump on these platforms is 99 cents right now as opposed to a dollar or a hundred.
But just something to bear in mind.
Also another weird nuance if you're trading the forecast EX binaries, it's a yes/no market.
(15:49):
So you could buy the binaries.
Most people think of binaries, will an event happen?
Yes or no.
Yes being of course the way most people view it.
So if it's going to happen, they buy the binary.
If it doesn't, they don't.
You can buy a no binary on forecast EX as well, which is a little counterintuitive for
people.
So seeing those markets fluctuate was kind of interesting.
Also there is no way to close by selling on forecast EX.
(16:13):
You have to if you buy the yes, let's say you bought the yes on Trump winning, it is
now trading 99 cents at a buck.
I'm assuming you can't sell it at 99 cents.
You have to buy the no to effectively exit that.
That's the closing transaction.
So that's a little bit weird.
Just something to bear in mind.
These marketplaces are still kind of Wild West out there.
(16:34):
All right, Dan, I laid down a lot in terms of binaries.
What else you want to add for our listeners?
Jeez Louise.
Yeah.
You know, I wonder how popular they're going to become because this year, you know, because
they actually are approved and this was the first big presidential cycle.
(16:59):
And you know, they were they were talked about by a lot of people and in the media just because
it's a really great place to get percent likelihood of something happening based on the general
public.
Now, that's not what's standing all the stuff we talked about on election night and all
that, which were some really great points.
People should probably go back and review that if you haven't already.
(17:23):
But you know, in that regard, it kind of they kind of are marketing themselves a little
bit.
It's probably really smart marketing that they listed them on these pretty controversial
events.
So the presidential race should not be controversial.
However, I guess it's better than the marketing concept that I came up with for them years
(17:50):
ago.
But my idea was binary options, not just for Cypriot gangsters anymore.
It never really caught on, though.
Yeah, no, that was.
I remember talking to your buddy, you mentioned there earlier, and he told me he was going
to a conference in Cyprus.
I was like, what kind of conferences are in Cyprus?
Oh, yeah, the binary options conference, because that's the only place that they were legal.
(18:15):
So yes, listen, this was the exclusive domain of scammers until not that long ago.
And now fast forward a few years.
And now, Dan, I think if there's one takeaway from this episode today is that we have not
seen the last of binary options, exchanges and products.
Everyone in the business listeners saw the success and the interest in these election
(18:40):
markets this cycle.
I've already talked to people in the exchange space here in the options world.
They are all busy feverishly working to spin up their own alternatives on this.
So we have not seen the last.
Dan, just think about it.
In the last election cycle and now just four years, we had the onset of zero day options
(19:01):
and election binaries.
And most of that was just in the last two years and in the last two months.
We have another four years to go.
Who knows what wild moonshot AR, VR, AI products will have by this time in four years, Dan?
What do you think?
Yeah, I know, man.
It's very, very interesting.
(19:24):
Oh, gosh.
We've talked a lot about this stuff.
I don't want to open up a whole big can of worms and also point out that online gambling
was a thing and then got banned and then became a thing.
And now is like, jeez, Louise, if you have a player's card at any casino, that's all
(19:47):
they're trying to push on you.
And they're taking out tables and putting in kiosks to gamble.
And I'll tell you, there's a lot of crossover between some of the things we're talking about
here today and that.
That there is listeners as we keep on rolling into a little bit of your mail call.
(20:08):
Time to look at questions submitted by our listeners.
All right, listen, as we are coming up against that, I do have to get to another show in
(20:34):
a few minutes.
Listen, there's no rest for the wicked here.
I want to get to this question from Travis.
He had a question about our app.
He says, I've been listening to the options boot camp from the beginning.
Well, thank you, Travis.
You're one of the many who goes back to episode one.
It's a lot of listening.
We appreciate your effort, though, he says.
And Mark mentions an options insider app.
(20:54):
Is this still available?
I have looked on the Play Store and I can't find it.
Thank you.
Well, short answer is it's not available right now.
Travis neither the iOS or the Google Play version are available.
It's in the process of being updated.
So to do that, they have to actually remove it from the store.
It's a weird thing.
We don't build the app.
(21:15):
We have developers who build that and maintain it for us.
And so in order to do that, they have to take it out to update it and resubmit it.
So it's going to be out of the stores for a little bit.
But I'll let you know as soon as the update is finished and we have a brand spanking new
shiny version of the app.
I do recommend the app for those of you who want to go back to episode one.
It is the best way to get access to all of our stuff.
(21:36):
Of course, you can go to our website as well.
If you're going through iTunes or some of the other stores, Spotify, whatever, they
might limit you to, let's say, I don't know, 500 episodes or something like that for some
of our shows.
And some of our shows go a lot longer than that.
So just bear in mind, if you want the whole kit and caboodle, the whole fire hose, the
app is a great way to do it.
If you already have the app, congratulations, it's still running.
You're fine.
(21:57):
But you can't go and download it new right now.
We'll let you know.
It should be pretty soon when it's available again for the update.
So Travis, great question for sending in that great question.
Our producers will reach out to you with something fun for you.
That is a great question.
But yes, just something to bear in mind.
A lot of you have reached out with that same question.
Where's your app?
I want to check it out.
It'll be coming back soon.
We'll let you know soon, listeners, when that app is available.
(22:19):
All right, listen, it is going to do it for us this week.
Kind of short and sweet this week.
We have a lot going on.
We are recording this, of course, as part of a double header.
So I do need to keep rolling into the future's rundown in a few minutes.
So if you're not done with Dan's, you want Dan Squared, Dan the Man, Gramso, will be joining
(22:39):
me in just a few minutes.
If you're listening live on the Pro to talk futures.
If you're listening after the fact, that'll be hitting your device of choice whenever
you're listening to your favorite podcast out there.
Of course, if you want to join us on the Pro, the optionsinsider.com/pro is the place to
go to learn more.
And of course, keep supporting the folks who support these shows that have been coming
(23:01):
to you since 2013 public.com/optionsbootcamp.
It's really easy.
All you have to do is go to that URL, let some know you're coming from our show.
And guess what?
You get more episodes of Options Bootcamp in your hot little air holes.
It's a win-win for everybody.
Public.com/optionsbootcamp.
And Dan, where should they go if they want some MTM goodness?
(23:25):
Maybe they too want to learn how to scam a iPod Nano from a binary options exchange.
I'll be able to help you out.
I know all the tricks.
Make your way on over to MarketTaker.com to tease and row.
And you can join a chat room.
You can DM me personally there or coaches or some of our other students you can interact
with, share trade ideas.
(23:46):
And we've got some free classes there as well.
So that's MarketTaker.com.
There you go, MarketTaker.com.
Don't forget the second T, which as the robots reminded us last week, Dan, stands for theta.
Market.com to learn more.
That's going to do it for us here on the show today.
Not on the network though.
No rest for the wicked listeners because I am off immediately to talk about all things
(24:10):
futures.
And I'll be back again tomorrow with our usual double header of the option block as well
as this week in futures options.
And then back again Friday with volatility views.
And then of course for all you cool cats in the pro one final time to talk all sorts of
wild unusual activity with options oddities.
You kind of want to check that show out.
(24:31):
It's definitely a banger.
It's been a fun one.
A lot of great trading ideas coming across the screens on that show.
Of course, go to the pro to learn about that.
TheOptionsInsider.com/pro.
Then we're back again next week.
Same bat time.
Same bat channel.
Another episode of Options Boot Camp.
Stay safe out there everybody.
(25:19):
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So don't change your strategy.
Change your platform and see the difference in your bottom line.
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To learn more please visit public.com/optionsbootcamp.
(25:42):
Paid for by Public Investing.
Options not suitable for all investors and carry significant risk.
Full disclosures and podcast description.
You're listening to the Options Insider Radio Network, the home of the Options Podcast.
For more quality options programs visit the optionsinsider.com or search for Options Insider
(26:06):
Radio Network in your podcast provider of choice.
Listeners can also access all of our programming through our mobile app available on the iTunes
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(26:29):
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