Cheat-Sheet for the Black-Scholes Valuation Formula

You don't need to know the algebra for the Black-Scholes valuation formula to make money from it, but you do need to understand it so that you don't make mistakes that cost you money. This blog-cheat-sheet will help you understand the basics for Black-Scholes, specifically the details needed to trade binary options.

First of all, the basics: Black-Scholes is a Nobel Prize winning formula that was created by Fischer Black and Myron Scholes - two very intelligent economists from MIT and Harvard. Fischer Black and Myron Scholes worked together at to create the formula after first working on the famous Capital Asset Pricing Model (CAPM), which was proven to not be as accurate for certain investments. They worked on the kinks and problems of the formula with Robert Merton for nearly 3-years from 1968 to 1971 eventually coming up with the Black-Scholes model which was eventually used to establish an investment fund that at first made some reasonable gains, but then lost nearly all of its value at a staggering loss of over $4,000,000,000 for investors. Since then it is not longer considered a long position investment and is primarily used by day-trader dealing in binary options.

Now you know, and the more you know, the better you will trade, so keep on reading.

Where to get more info on binary options trading history and background:

Fischer BlackCo-Founder of Binary Options Formula

As a seasoned trader of binary options, I often get asked about tips and recommendations. The problem is that I can't answer such a question with a simple answer, however, I can say with certainty that if you educate yourself on the matter, you will see stronger profits when you trade and you'll understand what you are clicking rather than just pressing buttons and hoping for the best,

The first order of business is that you should learn the history of binary options trading as well as familiarize yourself with the Black-Scholes binary options valuation formula.

Once you have mastered this information, then you'll be better equipped to read the graphs and understand which binary option trades are good trades and which ones are riskier. Such information is way more important than the short term "which stock is good" or "which way is the market headed" questions, who's answers have an expiration date of RIGHT NOW.

Basics of Black Scholes model

Fischer Black

Black Scholes is the basis for all binary options trading, online or off. Once you understand the formula for calculating the prices and closing values of the traded option, it becomes far more clear how to use this information for realizing profit and minimizing risk and loss. Although the formula does not allow for certain gains, it does mitigate the chances of loss and also helps traders "wrap their heads around" the mechanics of the market so that they can use that information to yield a profit or hedge losses. Unlike stocks, bonds, currency and all other forms of trading, binary trading incorporates all those instruments into a very simple YES OR NO type of decision that the trader can then decide if they want to take or not. With the proper emotional conditioning and expanded understanding of the markets' behavior, a trader can double, triple or even greater expand his profits.

Myron Scholes

One of the main aspects required by the Black Scholes Valuation Model is that they must have "frictionless" meaning they do not incur any fees, as well as being one that does not offer dividend and that can be sold fractionally. The process of purchasing such an share would make it very difficult to repeat as who buys "half" a share or any portion of a share other than a whole, and in addition, who will sell you and buy from your shares without charging as how would they afford their own costs. Binary options solve all these issues by combining all of them into a nice tidy unit that they sell as a binary option. While they may loose out on places that otherwise earn them fees, they pass on the savings to the traders, whom they make money from on the difference of profit vs loss.