Archive for March, 2013
A binary option is an asset which can yield only 2 outcomes which are; either the investor will earn a certain amount if the option attains a certain level or nothing if it doesn’t. This investment vehicle is unlike a regular option that offers the investor the right to purchase or sell an asset at a specific price. Instead, it is like a gamble that the asset will reach a given price on a specified date. If the asset attains this price on the said date, the investor gets to earn the amount specified in the agreement but if it doesn’t, he/she earns nothing. Binary option is a rare stock market trading but it generates many investors huge amounts of money.
Binary trading option needs thorough knowledge and the employment of winning strategies to obtain better results in the long run. As a beginning investor, following effective strategies can boost your chances of winning but you must stay realistic and understand that success is always difficult to achieve. In other words, there are moments when sticking to a strategy can still result in failure although the possibilities are much lower than not having binary options strategies for directional and volatility trading at all.
Understanding Volatile Options Trading Strategies
These strategies are designed purposely to yield profits from binary options which are prone to experience a significant price movement, without having to foresee in which direction that price movement will head. Since predicting the direction of the movement can be very tricky, volatile options trading strategies can be quite practical. The underlying principle of using these strategies is that you bring together multiple positions which exhibit profits but minimal losses so you can make profits. Here are a few binary options strategies for directional and volatility trading to consider;
The Long Straddle Strategy
This is a combination of purchasing the same quantity of call options and put options both with the same strike price and expiry. Purchasing call options offers limited losses in regards to the amount one can spend on them, but limitless potential gains as one can make as much as the value of the binary options increases. Acquiring put options also ensures limited losses and nearly boundless gains. The possible gains are controlled only by the amount the price of the given binary options can drop. By integrating these 2 positions into an overall position, you should be able to make an adjustment in whichever direction the security moves in. A good example for Long Strangle Strategy is one touch mechanics that allows the trader to set the position of the barrier ,the time of expiration and the payout to be received once the barrier is broken.
The Long Strangle Strategy
The Long Strangle strategy is quite similar to the Long Straddle strategy only that it is characterized by lower upfront costs. Also, it is ideal for novices.
The Long Gut Strategy
This is a neutral approach in binary options trading which involves the simultaneous acquisition of an in-the-money call option and an in-the-money put option with the same underlying stock and expiration. It is a boundless gain, limited risk strategy which can be selected when the investor predicts that the underlying stock will experience volatility in the coming days. The strategy is “debit spread” since a net debit is required to begin the trade. Large profits are made when the price of the underlying stock makes a very dramatic movement either upwards or downwards at expiration. The shift in the stock price must be significant such that either the long call or the long put increases enough in value to counterbalance the loss incurred by the other option expiring valueless.