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

  • Options: Debt and Net Return

    This is the last in a series of articles about how dividends affect option value and volatility. In picking stocks for options trading, what are your criteria? Analysis of dividends, debt and net return – all fundamental tests – help identify strong value companies (and lower-volatility options) versus weak, high-risk stocks.

    By Michael C. Thomsett,

    • 0 comments
    • 166 views
  • Can you "Time" the Steady Momentum PutWrite Strategy?

    As a financial advisor, investment advisor, hedge fund manager, model developer, and newsletter signal provider for over a decade now, I've had the opportunity to see quite a bit of human nature in action.

    By Jesse,

    • 0 comments
    • 200 views
  • How Steady Momentum Captures Multiple Risk Premiums

    Our Steady Momentum PutWrite strategy attempts to outperform the CBOE PUT index, which writes cash secured puts on the S&P 500. An investable version of this strategy can be purchased with the ETF PUTW. The historical data for PUT extends back more than 30 years, highlighting how writing puts can be an attractive strategy.

    By Jesse,

    • 0 comments
    • 438 views
  • The Effect of Dividends on Options Pricing

    The theory of dividends and underlying stock prices is simple: The underlying price is expected to decline on ex-dividend date, by the amount of the dividend. As a result, option prices should decline as well. Under this theory, calls for higher dividend stocks should be valued lower and puts should be valued higher.

    By Michael C. Thomsett,

    • 0 comments
    • 313 views
  • 5 Ways To Identify Fake Forex Broker Reviews

    Many traders or future traders shop for a broker to work with and find endless reviews on the web, and not all are genuine. Here are 5 ways ways to separate the good from the bad. There are lots of sites that specialize in forex broker reviews and lots of talk about brokers in various forums.

    By Kim,

    • 0 comments
    • 180 views
  • 3 Dividend traps to Watch For

    Dividends are almost universally viewed as positive aspects of stock selection and options trading. The higher the dividend yield, the more positive. But does this ignore some dangers in dividend trends? In fact, there are three ways in which dividends can mislead traders and create positive impressions when in fact, the news is negative.

    By Michael C. Thomsett,

    • 0 comments
    • 248 views
  • Dividends and Options

    Steady Options has received numerous inquires into how dividends impact options, option prices, and the owners or option contracts. The impact of dividends should be understood by any option contract trader.  Fortunately, the rules for option contracts and dividends are clear and straightforward. 

    By cwelsh,

    • 0 comments
    • 283 views
  • When Can You “Trust” a Backtest?

    There's a joke in the financial industry that "nobody has ever seen a bad backtest". There certainly are bad ones, but nobody ever markets them. They just get thrown in the trash. Even academics can fall prey to this.

    By Jesse,

    • 0 comments
    • 230 views
  • Increasing Yield Through Covered Calls

    When starting out with options, a natural place to begin is with covered calls. It’s a very easy to understand strategy for those that are familiar with stock ownership. The strategy involves buying a stock in lots of 100 shares. The total size will depend on you account size and how much exposure you want to take.

    By GavinMcMaster,

    • 0 comments
    • 327 views
  • Alternative Investments: Real Estate Construction

    One of the most common complaints received from investors relates to low yields, low returns and/or the inability to have a reasonable cash flow from investments. This is particularly true for investors who feel that they have too much invested in the stock market.  Many want to diversify into real estate of one form or another.

    By cwelsh,

    • 0 comments
    • 214 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