SteadyOptions is an options trading forum where you can find solutions from top options traders. TRY IT FREE!

We’ve all been there… researching options strategies and unable to find the answers we’re looking for. SteadyOptions has your solution.

Trading Options – The Binary Way


The following article was kindly provided to us by Adam Grunwerg at BinaryOptions.com. His site provides information about binary options trading, lessons and trader picks.

 

Everything changes…You might ask what’s the connection between that and Options and you would be entitled to do so, but to answer the question, I must tell you a little story: I started to trade Forex about five or six years ago. I went through the usual ups and downs, lost money in the beginning and then made it back. I’m not going to bore you with the details, but after I finally got my trading together and found my balance, I thought I would never trade something else. Well, that thought was short lived because my curiosity led me to Options. At first I just wanted to know what they’re about, I wanted to compare them to Forex and see if I am able to achieve higher returns with lower risk, but soon I started to trade Options more than Forex.

 

Then the Binary Options craze hit the internet. All the slogans, all the stuff like “…binaries are easy and profitable” made me stay away at first, because I don’t consider that to be a good approach to financial instruments and trading in general. But curiosity struck again and got the better of me so I took a second, closer look at binary trading.

 

 

The Good, the Bad…the Binary

 

To put it simply, when trading Binary options you either lose the entire amount invested on a trade, or you win a fixed payout which usually ranges from 65% to 95% of your investment, depending on broker and underlying asset. This leads us to the first and major difference between Binaries and regular options: while trading regular options, the further price moves away from the strike price in our predicted direction, the more we profit, but when trading Binary Options, just one pip/point is all we need in order to win the entire payout. Assuming we have a regular option trade and at expiry time price is one pip/point above the strike price, we are not in a very happy situation, but if a Binary trade expires at the same point…well, we just made 65% to 95% profit on that trade.

 

On top of that, a Binary Option trade is not affected by the Greeks. Did you ever find yourself in a trade that lingered around the strike price and only started to move in your desired direction late in its “life span”? I know I did…and by that time, Theta ate all my potential profit. Not a beautiful scenario, but nonetheless, time decay is something that we need to take into consideration when trading regular options. However, the good news is that Binaries are not affected by Theta or any of the Greeks so in other words, even if in the last moments of my trade, price moves above/below the strike price, I still receive the entire payout.

 

Not everything is milk and honey in the Binary world and a drawback is the Risk to Reward ratio: I can lose 100% but I can only make 65% to 95%, depending on the broker I am trading with. Well, I know that in order to make a profit you have to either have a high win rate or a good Risk to Reward ratio…In Binary Options this ratio is not so good, but the fact that you just have to be right about the direction and not having to care about the distance traveled can help with the high win rate part. Also, some brokers offer a refund on Out of the Money options and this refund can go up to 15%, but not all brokers adopt this practice and 15% is seen rather rarely.

 

 

Wrapping it up

 

Once I got over my first urge to dismiss Binary Options due to the advertising and the hype created around them, I realized it’s a profitable instrument, much easier to trade than others. Some Forex traders, especially new comers find it difficult to calculate position sizes; some regular Options traders have difficulties understanding all the butterflies, iron condors, bull spreads, albatross spreads and especially the Greeks and how they can influence the profit of a trade.

 

None of the things mentioned above are a problem when trading Binary Options and to be honest, I am glad that my curiosity made me try them out. If you already are an experienced trader it will take you probably about 10 minutes to learn all about Binaries and although it will take longer for a newbie to understand it all, in my opinion, Binary options are one the most accessible trading instruments available at the moment.

 

Disclaimer:

 

This article is intended for informational and educational purposes only. In no way should it be viewed as endorcement from SteadyOptions to use binary options or one of the brokers.

 

Edited by SteadyOptions

What Is SteadyOptions?

Full Trading Plan

Complete Portfolio Approach

Diversified Options Strategies

Exclusive Community Forum

Steady And Consistent Gains

High Quality Education

Risk Management, Portfolio Size

Performance based on real fills

Try It Free

Non-directional Options Strategies

10-15 trade Ideas Per Month

Targets 5-7% Monthly Net Return

Visit our Education Center

Recent Articles

Articles

  • Fundamental Volatility and Stock Prices

    Every options trader must wonder whether any connection will be found between the company's fundamentals and stock prices (and in turn, option valuation as well). Because options are derived from stock price behavior, the analysis of stock movement is crucial to selecting options wisely; and that relies on volatility in the reported profit and loss over several years.

    By Michael C. Thomsett,

    • 0 comments
    • 61 views
  • Bullish Short Strangles

    A bullish short strangle sounds like a complicated strategy, but it’s really quite simple for those familiar with option terminology. A short put is combined with a short call to where the position starts with some amount of positive delta overall. This distinguishes itself from a delta neutral strangle, where both the short put and short call are sold at the same delta.

    By Jesse,

    • 0 comments
    • 83 views
  • Eight Mistakes Every Forex Trader Should Avoid

    The forex market is currently the largest financial market in the world and, due to its highly liquid nature and low barriers to entry, is only expected to grow. Becoming a forex trader requires minimal effort and with a decent internet connection, a laptop or computer, and some spare money to invest, you can start in no time.

    By Kim,

    • 0 comments
    • 105 views
  • Put/Call Parity - Two Definitions

    Put/call parity is a term options traders use to mean one of two things. The simplest definition and the one most applicable to most options traders compares the similarity in the bid/ask spread and the net debit or credit resulting from this.

    By Michael C. Thomsett,

    • 0 comments
    • 246 views
  • Put Selling: Strike Selection Considerations

    When selling puts, such as we do in our Steady Momentum PutWrite strategy, there are many questions a trader must answer: What expiration should I use? What strike should I sell? Should I choose that strike based on delta or percentage out of the money?

    By Jesse,

    • 0 comments
    • 273 views
  • What Can We Learn From UBS YES Lawsuit?

    News followers may have seen the recent stories on UBS being sued by its clients and investors who participated in UBS’s “Yield Enhancement Strategy (YES).”  Evidently, numerous UBS clients signed up to participate in an iron condor strategy that lost a lot of money.They’re angry, and they’re filing a lawsuit.

    By cwelsh,

    • 2 comments
    • 894 views
  • Pinning Down the ‘Option Pinning’

    What many people on SO have in common is that they have read the books of Jeff Augen on options trading. Although written a decade ago they continue to be an interesting source of strategies for the retail investor. Retail investors have particular constraints that make most of the broad theoretical musings on options rather moot.

    By TrustyJules,

    • 0 comments
    • 386 views
  • Holding Positions into Expiration

    "Every once in a while you must go to cash, take a break, take a vacation. Don't try to play the market all the time. It can't be done, too tough on the emotions." - Jesse Livermore

    By Mark Wolfinger,

    • 0 comments
    • 307 views
  • Tales Of How Big Trades Went Wrong

    One way to learn from your past mistakes is having to go through the painful and challenging experience of explaining them. Another way is to listen to others who might have lived through some disgruntling trades. Joseph Trevisani goes deep into the rationale he followed during the volatile EUR/JPY days of 2007 in this article.

    By Kim,

    • 0 comments
    • 326 views
  • Covered Straddle Explained

    The covered straddle is a perfect strategy for those all too common sideways-moving trends. When a company’s stock is in consolidation, how can you make trades? No directional trend exists, so most traders simply wait out this period.

    By Michael C. Thomsett,

    • 0 comments
    • 474 views

  Report Article

We want to hear from you!


I'm more curious about hedging process involved to make money. 

 

I know that in sports betting, in close matches brokers don't set the lines properly; e.g., 

In a game of team A vs. team B

Broker 1: has team A win payout 55%

Broker 2: has team B win payout 55%

 

Then, it becomes a guaranteed win if you place bets respectively for A and B. I'm curious if the same scenario could take place in binary options where the payoff's aren't being adjusted to market condition, and one could hedge the other side of the bet with the more liquid index vanilla options for guaranteed payoff's, 

Share this comment


Link to comment
Share on other sites

Can you recomend brokers that offer binary options? I have come across some ads and the brokers don't look legit. TOS doesn't offer binary options.

Share this comment


Link to comment
Share on other sites
On 1/12/2016 at 8:38 AM, Josh Binary said:

Yes, I can recommend good binary options broker. Just go to www.sbinaryoptions.com All good brokres are there

Are all of these companies regulated by the relevant "US" agencies?

When I try to enter every one of the companies on the list provided, my internet security software will not allow me in, because none of them are secure.

I don't think this is a viable list.

As far as I know, there is only one fully regulated Binary firm.....NADEX

Edited by cuegis

Share this comment


Link to comment
Share on other sites


Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account. It's easy and free!


Register a new account

Sign in

Already have an account? Sign in here.


Sign In Now

Options Trading Blogs