# Binary Accounting Ltd

## Binary Options Trading and Hedging

hi and welcome to the binary optionstrading tutorial this is Steve Wise and today we're going to talkabout the binary options hedge with a call and a put position and i just like to remind you that this tutorial and audio content and theslides therein are the property of binaryoptionbroker

and we're distributing this on so follow the guidelines on to usethis tutorial if you want redistributed and just bear in mind the rules andregulations with regarded to using it. all right so with that out of the way let's get started so let's take a look at a couple slidesi've made this first slide is

your basic naked binary option trade and what we've done here is we've takena binary option call on google we'vetaken a two hundred dollar position with a strike price at five seventy seven fifty per share that's what it was at the time i madethis slide in and made this discussion all the numbers all the details of thistrade that we talk about are covered on the website binaryoptionbroker

and you'll find all the information inall the all the percentages and what have you uh. there so if you have any questions about what thenumbers are and what they are meeting where they all came from that's all is going on the website but what i want to talk about in this tutorialis that this kind of position taking a nakedcall

binary option is very risky in it's not the kind of investment that isee as uh. a favorable one for you theinvestor and the reason why i say that is because there's so much downside risk and noprotection if things go awry and that's not the kind of trade iadvocate what i prefer to do

is i'd prefer to pair my binary option with another option either another security another optionanother binary option the underlying security itself maybe i already only underlying securityand i'm trying to make up some profit on that uh. taking advantage of market movementdownside upside what have you

### Integer Linear Programming Binary 01 Variables 1 Fixed Cost

Welcome!In this tutorial I'll formulate linear integer programming models involving Binary or 01variables. Binary variables are employed when there isa yes or no situation. That is, to indicate whether a selection ismade or not. For example, suppose we have 4 different projectsto consider. We can either select a project, or not selectit. So for the first project we can define thedecision variable as follows: X1 = 1 if project 1 is selected, and 0 ifnot selected.

We do the same for projects 2, 3, and 4 bydefining X2, X3, and X4. Or we can simply writeXi = 1 if project i is selected, and 0 if not selected.where i = 1, 2, 3, and 4. Now, suppose each project has the same lifespanof 3 months (January to March), with corresponding outlays or costs (in thousands of dollars)shown here. Suppose these are the funds available forselected projects each month, and these are the net returns (in thousand dollars) fromeach project. In this case, our objective is to maximizereturn which is

217X1 + 125X2 + 88X3 + 109X4.Since project outlays are constrained by available funds, we write (for January)58X1+ 44X2+ 26X3+ 23X4 â‰¤ 120 We do the same for February, and for March.And then complete the model by stating that the decision variables must be binary.Upon solving this model using software like LINDO or Excel Solver, we find that the optimalsolution is X1 = 1, X2 = 0, X3 =1, and X4 = 1 with a correspondingnet return on 414. That is, to maximize net return, undertakeprojects 1, 3 and 4 only. Let's now model a fixed cost problem.Suppose a small company receives an order

to supply 1000 units of a product.The company has 3 machines that can be used to produce the product.Here are the variable costs per unit produced from each machine, here are the fixed costs,and here are the machines' capacities. Our objective is to minimize total costs.We're going to need 2 types of decision variables in this case. One set for the numberof units produced from each machine, and because of the fixed costs, another to indicate whethera machine is being used or not. So for units produced we writeXi = number of units produced on machine i (i = 1, 2, 3)That is, X1 represents units produced on machine

1, X2 for machine 2 and X3 for machine 3.Now because fixed costs indicate that the entire cost will be incurred if the correspondingmachine is used to produce at all, we define another set of variables.For machine 1 we can write Y1 = 1 if machine 1 is used, 0 otherwise.That is, if X1 gt; 0, Y1 = 1, otherwise Y1 = 0. For all 3 machines we writeYi = 1 if machine i is used, 0 otherwise â€¦ So for the objective function, which is tominimize total costs, we write Minimize 2.'X1 + 1.99X2+ 2.99X3 + 300Y1+250Y2+400Y3 That is, we multiply variable costs by unitsproduced

and multiply the fixed costs by the corresponding01 variables. When Y1 = 1 here, for example, it means thatmachine 1 is used and the fixed cost of 300 will be incurred. And when Y1 = 0, machine1 is not used, so the fixed cost of 300 will not be incurred.For the constraints, we have an order here to supply 1000 units. So we writeX1+X2+X3 = 1000 Equality is used here because we have to meetthe order or demand placed by the customer. Now, for the capacities. Normally we justwrite X1 â‰¤ 400, X2 â‰¤ 550, and X3 â‰¤ 600Note that this X1 â‰¤ 400 constraint simply