Posted by The Voce | Posted in The Online World | Posted on 23-07-2014
Binary options strategies come in all shapes and sizes but when you really take a closer look there are really just two overriding themes, speculation and hedging.
In the following paragraphs we explore the most common speculation and hedging strategies used in binary options trading today.
Speculative Binary Options Strategies
Speculative binary options strategies typically consists of a trader implementing some sort of technical analysis to pick high probability binary options entry points.
Candlestick charts are used pretty extensively in these types of binary options strategies as they are pretty adept at identifying short-term trends, something all binary options traders strive for.
When implementing speculative binary options strategies, traders tend to wait until the last few minutes prior to the lock out period to place a trade. Waiting until the last minute to place the binary trade minimizes the amount of time the trader needs to be correct in his/her short term directional choice.
Stocks tend to move around a bit and it is very common for trends to reverse after a few minutes, so the shorter amount of time the trade is exposed the better for speculative binary options strategies traders.
Hedging Binary Options Strategies
On the extreme opposite end of speculation lie the hedging binary options strategies. While the speculative traders take on massive all or nothing risk in their trading activities, hedgers prefer to place a trade early in the expiration cycle, monitor the performance, and then decide on an appropriate action plan to ensure maximum gain and minimum loss.
Hedgers usually implement one of three strategies during the expiration cycle.
1) Purchase a binary call (put) option early in the hour and, if the stock moves in the appropriate direction, purchase the opposite binary put (call) to lock in a profit zone and minimize the amount of downside risk.
2) Purchase a binary call (put) option early in the hour and, if the stock moves in the appropriate direction, purchase another binary call (put) to essentially double the trade amount.
3) Purchase a binary call (put) option, and if the stock moves against them, quickly purchase the opposite binary put (call). This strategy essentially locks in a loss unless the hedger is able to place another trade to create a profit zone.
These binary options strategies are used extensively throughout the day by experienced binary options traders. While the speculative binary options strategies incur more risk, the reward is significantly high enough that most traders of binary options end up using it more frequently. If you are more conservative then you should definitely consider going the hedging route.
Stick around for more awesome content just like this!