Options Trading Strategies

Any discussion of option trading strategies must address a simplistic form of options trading called binary options trading. Not too many investors know about this form of investment but it is a very hot market right now for people not willing to be stuck with long holding period investments such as stocks, bonds, mutual funds, traditional option contracts and futures. This option trading strategy introduction will focus only on binary option trading.

Binary contracts are, like the name implies, bi-polar. Either you choose the “up” direction or the “down” direction. You might think of it similar to any two-sided choice – yes or no, true or false, heads or tails, on or off. In this case the binary switch refers to up or down movements in a stock, currency, or index.

How it works is that the investor with a binary options trading account picks one of the available securities to trade (not all securities are traded… only the highest volume securities are traded this way) and selects how much to invest. Once the amount to invest is selected the investor must choose which direction the security will go, up (choosing “call”) or down (choosing “put”). The trading software computes the payouts (also fixed based on the contract) and if satisfied with the contact, the investor submits the order.

The really fascinating part about this sort of transaction is that it does not matter whether the stock moves… the only thing that matters is the direction. The payout at the end of the contract is the same whether the security jumps a nickel or twenty dollars. If the binary option trading contract is for a 75% payout on an up movement of a security on a $100 investment and the stock is up even just one cent at the expiration of the option, the investor receives $175 ($100 invested plus $75 profit). Options expire typically hourly so a successful trader can execute many contracts every day.

To summarize, this binary option trading strategy: Contracts have fixed expiration (hourly) – and can’t be sold prior (although it is simple enough to simply make another contract with the same expiration Trades require the investor to choose only how much to invest, which security, and which direction.

This is one method to explore.