I meant to mention this sooner, but HedgeStreet just landed $12.5mm in venture financing from Norwest. That comes on top of $12.4mm the online “binary option” exchange had already received.
It’s a fascinating idea, one certain to appeal to sophisticated investors, while giving regulators giant headaches:
HedgeStreet’s Binary Option Hedgelet is an all-or-nothing option with a
fixed payout of either $10 or $0, depending on the final value of the
underlying asset (for example, oil) or event (for example, rise in the
Fed Funds interest rate). It consist of one contract that can be either
bought or sold short, allowing traders to profit from short-term
fluctuations in market movements and economic events. Each contract is
defined by the price of the underlying asset, the strike price agreed
upon by the buyer and seller, the expiration date of the contract and
the payoff. For example, traders would BUY if they believe the market
price for crude oil will rise or a specific economic event will occur.
Traders would SELL if they believe the opposite will happen. If their
insight is correct at the expiration date, they make $10. For more
sophisticated traders, HedgeStreet also offers Futures Hedgelets,
stop-loss futures with a variable pay-out between $0 – $50, depending
on incremental movements in the underlying asset.