Fx digital option gamma profile
Digital and Exotic Options. While digital options find themselves among truly exotic trading vehicles, such as look-back options, chooser options and Bermuda options, they are the simplest options of all and individual traders can employ them, if only synthetically. A digital option is an option whose payout is characterized as having only two potential values - a fixed payout of, say $1, when the option is in-the-money or a $0 payout otherwise. The payoff remains the same, no matter how deep in-the-money the option is. Because the payout of a tight bull spread is closely similar to that of a digital option, so is its pricing. If a trading system has the capability of pricing a tight bull spread, it shouldn't be challenging to price a digital option. Using a forex example, digital options let you wager on whether the exchange rate will trade above or below the trigger level at expiration. Digital options typically are placed into the class of financial instruments referred to as ...