Bungee Bets

The Bungee is a unique limited risk bet that stays 'alive' even when your safety level is breached, giving you the chance to bounce back into profit. The built-in 'Floor' or 'Ceiling' ensures that the price will not exceed the stated level, however far the underlying market may move.

With a Bungee you know that your bet cannot settle at any worse than the Floor or Ceiling level, whatever happens to the underlying market. And because your position remains open even if the underlying market is currently through your safety level, you can still make a profit if the market comes back later in the day.

How do Bungee bets work?

Every Bungee bet has a built-in Floor or Ceiling level, beyond which the Bungee price cannot move. This means that a Bungee Bet is a strictly limited risk proposition.

The Floor or Ceiling of a Bungee works very much like a Stop level, as it ensures that you cannot lose more than a given amount on your position. But there is one key difference: if the underlying market breaches the Floor or Ceiling level, your Bungee position stays open. So if the underlying market swings back to your favour later in the day you can still make a profit. This is especially useful in volatile markets where sudden dips and blips can interrupt the general trend of the market.

Please note that this graph is intended purely to indicate the general relation between the level of a Bungee bet and the level of the underlying market and does not correspond to any actual price data.

On any given dealing day there are a range of Bungee Buys, with a built-in Floor level, and a range of Bungee Sells, with a built-in Ceiling, against selected underlying markets. For instance, a Bungee Buy on Daily Wall Street with a Floor of 12900. The price for this Bungee Bet cannot therefore move any lower than 12900, however low the underlying market (i.e. Daily Wall Street) may fall.

If your bet is still open at the expiry time it will be settled at the official closing level of the underlying market, or at the Floor/Ceiling level if the official closing level is currently beneath/above the Floor/Ceiling.

Please note that it is not possible to 'sell' a Bungee Buy or to 'buy' a Bungee Sell, and you cannot place regular Stop or Limit Orders on any Bungee bet.

For example

The FTSE 100 Index is trading at around 6050 and you think it is going to rise over the day.

The quote is 6055 - 6059 for the FTSE 100 Daily Bungee: Floor 6040.

You decide to bet £5/point that the Bungee price will rise above the 'buy' price of 6059. You know that your maximum potential loss is just 19 points, as the Floor level is fixed at 6040 (6059 minus 6040 = 19). (Remember, you cannot 'sell' a Bungee with a Floor; to go short you would 'sell' a Bungee with a Ceiling.)

Soon the FTSE rises and with it your Bungee: by midday the Bungee price is riding high at 6098 - 6102. At this point you could sell out for a 39-point (£195) profit but you hang on, thinking there is more to run.

However the volatile market turns against you and before long the FTSE is trading down at 6020. Your bet is safely 'frozen' at the specified Floor as the Bungee price now stands at 6040 - 6044. If the FTSE recovers you could come back into profit; if not you still cannot lose more than 19 points (£95).

Wall Street opens and immediately rallies. The FTSE follows suit. Your Bungee is reactivated - and, in this scenario, you are ahead once more.

Your position expires at the market close of 6110.

The result

Profit on deal: