Binary events in financial markets refer to a decision being made on a stock or market sector whereby there are two possible outcomes. The conclusion of the event often results in an immediate reaction seen in the market that it pertains to; these events include earnings announcements and new legislature to name a few examples.
Options traders like to keep binary events on their radars because there is the potential for large moves in the market or a deflation in. Today we will look back at some of these events, such as Brexit or the Presidential election, as they affected the S&P 500 to see if selling options around these events was a profitable strategy.The Study
- Sold with
- Compared results to when spiked above 25 for “binary event” effect
- S&P 500 (SPY)
- 2001 to present
We found that the inflated implied volatility seen in the broad equity market’s options was often overstated. Selling Straddles of either expiration saw profits around these events in the long run. For further statistics and conversation around this study, view the segment above.