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Binary Options Strategy
Welcome to the part of our website dedicated solely to your education! No matter how experienced in trading binary options you might be, you will always be able to find useful tips and advice here to help you improve your chances. We want to help you find a way to create a perfect binary options strategy! Without any restrictions, you can browse dozens of educational articles divided into three categories because we here at BinaryOptionsTrading-Review.com always put our readers first. There is something for absolutely everyone here! Of course, new articles will be added on regular basis, so be sure to check this part of the website regularly if you want to expand your knowledge. But for now, allow us to show you what we offer.
BINARY OPTIONS FOR BEGINNERS
If you’re new in this business, this is the category you should check out first. Here we analyze and explain the most basic terms and show you what to look out for at the beginning of your trading career. We will also show you how use all the most important tools, so that you can immerse yourself in trading without too much stress. In short, this is the category where we provide you with some extremely solid foundations upon which you can then start building your binary options strategy. Go through these articles, and you will surely be able to achieve some success on the market. However, do remember that there is much more to learn, so you definitely shouldn’t stop with your education once you’re done with this category.
ADVANCED BINARY OPTIONS
So, you’ve familiarized yourself with the basics? You don’t consider yourself to be a beginner anymore? Good, because there is much more to learn. This is the category where we start to show you just how complex this type of trading can get. We will show you the basic principles behind some of the more demanding tools and an advanced way to come up with your binary options strategy, so that you can scratch below the surface of the market and start thinking several steps ahead. These articles will broaden the range of solutions you have when you take a look at the latest market data. Of course, we still keep things nice and simple, thanks to our experts who know exactly which questions traders have when they reach this stage.
BINARY OPTIONS FOR EXPERTS
Want to become a pro and turn trading binary options from a side income to your main source of income? Great, these are the things you need to master. Go over them even if you consider yourself a trading expert because there are many details you need to be aware of at this level. Even the best traders can discover something new they are not familiar with, or they simply need to learn more about a particular subject. It all pretty much revolves around technical analysis at this stage, so we will give you more options to extract information from the way the market behaved in the past. This is where you get to see just how complex a binary options strategy can get, but don’t let that scare you – our experts will be with you every step of the way.
All of these articles have been written by our team of reliable experts. These people have been a part of this industry since its inception, but they also have significant experience with other types of trading. They know how exciting and profitable binary options trading can be, and they also know about the dangers that lurk out there. That’s why they are the best source of information for you and why they started writing these articles in the first place. Our experts are here to help you enjoy your trading and to help you gradually get better at it. With decades of experience between them in total, you can rest assured that you will be provided with only high-quality information. With their help, your binary options strategy will be rock-solid.
BINARY OPTIONS SIGNALS
However, numerous articles on binary options strategy are not the only way we can be of assistance to you. We will also provide you with trading signals absolutely free of any charge. The signals are created by using all our knowledge of technical and fundamental analysis on an asset, so this way our experts can also be with you while you’re trading and you can use their tips to achieve additional profit. It’s our way of saying thank you for your confidence. We are very careful when we release new signals, as we want you to have the best possible chance for success. That’s why we only publish signals that have the highest chances to bring you profit. Think of them as a form of advice from us, something that is meant to improve your binary options strategy. Like we said, they are completely free and all you need to do is to subscribe by filling out one simple form located in the top right corner of this page.
Patterns of Investment Strategy and Behavior Among Individual Investors (Wilbur G. Lewellen, Ronald C. Lease and Gary G. Schlarbaum-1977)
Options Trading Strategies: Everything You Need to Know About Put and Calls
[Editor’s Note: I’ve seen firsthand over the years just how little people understand about options. That’s why we had Michael create an exclusive investor’s guide for you called “The Power of Options.” The best part is we are giving it to every single subscriber for free. To access your free investors guide,click here. In the story below Michaels explains various options trading strategies. ]
By Michael C. Thomsett , Money Morning • August 10, 2020
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There are hundreds of option trading strategies. And they can be vastly different in terms of tactics and desired outcome.
Covered calls are very conservative, for example, while uncovered or “naked” calls are high-risk. How you select them depends on your risk tolerance and comfort level with different degrees of exposure.
But in fact, there are really only a few basic strategies, and everything else is built on these in some form.
At Money Map Press, we use eight general strategies (and “families” of strategies). These will cover most of the approaches you are likely to see and to take in your own trading.
But I do want to mention something first.
This same huge range of possible strategic designs is what makes the options market so interesting, challenging, profitable… and also nice and risky.
Are you surprised by my characterization of risk as “nice?”
Well, “risk” and “opportunity” are really the same thing, and every option trader needs to accept this.
If you want to go fast and get some serious movement, well, you have to climb on board the rollercoaster first, even if it scares you a little bit. Okay, here we go.
Today we’ll take a deeper look at four of the eight options strategies we use on a routine basis.
The long call is a cinch. You simply buy a call – often for as little as 5% of the value of the 100 shares it controls.
You wait for the underlying to rise in value, which is what you’re betting on. And then you either sell the call (at a profit) or exercise it.
Now, as attractive as the long call may be at first glance, it is not easy to make money consistently. It’s a matter of time, timing, and proximity, and almost never a matter of price only.
Let me explain that.
Time describes the endless dilemma of the long call trade. You want to find the cheapest long call you can, knowing that you need to build profits, not just above the strike, but far enough above to cover your cost, too. So the more expensive the call, the further the price needs to move. At the same time, focusing on cheap calls will leave you with very little time for the call to appreciate.
Timing is the key to creating profitability in long call positions. If you are going to pick calls at random, you’ll lose more often than you’ll win. But if you know how to time your trade, your odds of profiting go way up. All ETFs, and indexes go through predictable cycles. The time to buy calls is right when the underlying is at the bottom of a cycle. This is where the chances of reversal and upward movement are highest, whether you seek a five-day turnaround or a two-month turnaround. Whatever your timeframe, timing is key.
Proximity is the third decision point in picking a long call. The distance between the price of the underlying and the option’s strike is what determines not only current premium price, but how responsive that price is going to be to movement in the underlying. When the two are far apart, you cannot expect a lot of point-for-point reaction, even in the money. The extrinsic value (implied volatility) will dampen reaction due to the distance.
In other words, the further away from the strike, the less the underlying price matters in terms of option premium. This is especially true for deep OTM options. The way the market prices options, the less chance that price will catch up to strike, the less faith there is in even strong price movement.
Just like the long call, trading long puts involves the three issues of time, timing, and proximity.
The only difference is, it’s a play on the underlying falling in value. Buying puts at the top of the cyclical swing – even very short-term ones – improves timing and presents opportunities to take profits, often in only a matter of days.
Short (Covered) Calls
The covered call is one of the most popular strategies – the “rock star” of options.
Now, it may be a rock star, but it is generally thought of as a conservative strategy. That’s because, when properly designed, a covered call generates profits no matter how the stock price moves.
(Are you starting to see the beauty of options?)
It consists of owning 100 shares and selling one call against those shares.
It’s for a trader who believes the stock price will go down. The short position is “covered” in the sense that, if the call is exercised, the stock is called away, but you don’t lose (even though the stock’s value will be higher than the strike). The idea is that the assurance of known profits from the covered call is worth the occasional lost opportunity.
You have to be cautious in how you set up the covered call to make sure that you “program” net gains no matter what.
Here’s the idea: With the covered call, you create a “cushion” with the premium you receive, so that your breakeven is below your original cost per share.
For example, if you sell a call and get three points, that moves your breakeven down to three points below your cost. That is the initial benefit to selling covered calls. But it does not address the larger market risk of having long stock. If the price falls below your strike, you lose. The short call is not a culprit in this scenario. In fact, the call reduces your exposure. But it does not eliminate the market risk, and that’s the point I want you to keep in mind.
On the upside, you face a different risk – that the underlying price could move well above the strike, meaning the call will be exercised, and your shares called away at the strike.
Since the market price would be higher at this point, it creates a loss – the difference between the fixed strike and the underlying current value. Is this potential loss acceptable to you, or not? If not, then you should not write covered calls. But realistically, it’s unusual for the underlying price to soar so far above the strike. Most of the time, the short call is going to expire worthless, or can be closed at a profit, or can be rolled forward. Yet even if none of these can occur, you can exercise the call at any time before expiration.
To ensure the greatest success in writing covered calls, follow these guidelines:
- Focus on very short-term contracts. Returns on short-term calls are better than on longer-term ones, because time value declines at an accelerated rate. If you sell covered calls that expire in one to two months, you can maximize your annualized return (we covered that term in Chapter 2). Even though you get more cash premium selling longer-term contracts, you make more in the end with short-term ones. You are better off writing six two-month calls than one 12-month short call. Another reason to avoid longer-term covered calls is that they keep you and your cash tied up that much longer. Anything can happen, but in the market, the longer you remain exposed, the greater the risk.
- Buy the right strikes. The ideal short call is going to be slightly out of the money. This is where the premium is at its best. Far OTM calls are going to have dismal premium in comparison, especially for soon-to-expire contracts. An ITM premium will be higher, but more likely to get exercised. Slightly OTM is the way to go.
- Remember, exercise can happen at any time. The most likely day of exercise is on the last trading day for any ITM option. The second most likely date is going to be on or right before the ex-dividend date. Traders exercise to become stockholder of record and get the current quarter’s dividend. So if you want to avoid early exercise, stay away from covered calls on stocks with ex-dividend in the current month. Or, as long as they are ATM or ITM, you probably don’t have to worry.
- Open profitable positions. Pick strikes above your basis in the underlying so that you get a capital gain, and not a capital loss, when exercise occurs. This is often overlooked, but it is essential. Now, there is an exception: You can sell covered calls below your basis, so long as premium is rich enough and exceeds the loss. For example, you buy stock at $37 per share. The 40 call is not attractive, but the 35 call can be sold at 5. If the call is exercised, you will lose two points in the stock, but the net outcome is a three-point profit.
- Remember the underlying. Another easily overlooked aspect of covered call selling is the stock, ETF, or index you select. You’re going to find the most attractive premiums in the most volatile underlying. Lower premiums are symptoms of low-volatility issues. This is yet another balancing act. High-volatility underlying issues are higher-risk, so if you buy shares solely to write covered calls, you expose yourself to higher market risk – a problem that can easily offset the benefits of the covered call.
You can also “cover” a short call by offsetting it with a later-expiring long call, or with a call that expires at the same time, but at a higher strike. However, these forms of cover are difficult to make practical. The cost element net of outcomes will usually be negative.
A lot of people wonder if you can create a “covered put” in the same way as a covered call. No. Here’s why: If you have shorted stock, a short put protects you to a degree, in the event the stock price rises, it’s kind of like insurance.
But on a practical level, a long call provides better protection because it will offset loss in the stock all the way up. A put protects you only to the extent of the premium you receive. And if the stock declines as short sellers want, the short put is at risk of exercise. So, realistically, all short puts are uncovered.
And the bigger risk is going to be found in the uncovered, or “naked” call.
When you sell a call naked (without owning 100 shares of stock), you face a bigger risk. In theory, a stock’s value could rise indefinitely. But at exercise, you have to satisfy exercise at the strike price. So, for example, if you sell an uncovered 30 call, and the stock then skyrockets to $90 per share, your loss is $6,000 (minus whatever premium you got for selling the call). Of course, it’s pretty unusual for stock prices to rise so dramatically. But it could happen. And therein lies the risk.
Every short put is uncovered, unless you offset it with a later-expiring long put. However, the risk is much smaller. Can you guess why?
Even in the very worst-case scenario, a stock’s value cannot fall below zero. So risk is quantified as the difference between the strike and zero. Actual risk is much less, of course. The true risk to an uncovered put is the difference between the strike and tangible book value per share (again, less the premium received). Realistically, a stock is very unlikely to fall lower than its tangible book value.
The risk, in all short options, is exercise. For covered call writing, exercise can be desirable since it produces a net yield. But for other covered call writers, as well as virtually every uncovered option writer, exercise is not desirable. It can be delayed or avoided by rolling forward. (See the sidebar for more.)
You can also take the covered call up a notch – creating even more profit in exchange for somewhat higher risks – with a ratio write. This is just a covered call involving more calls than you cover with shares. For example, if you own 200 shares and sell three calls, you set up a 3:2 ratio write. The market risk is greater, but so is the premium income – by 50%. For this reason, many covered call writers like the ratio write, and accept the risk.
You can address the risk, somewhat, too. If the underlying begins moving up, you can partially close the ratio write to eliminate risk. Or you can roll forward one or more of the short positions. Given the fast decline in time value, there is a reasonable chance that the premium value of the calls is going to fall enough to wipe out the risk. Close the extra leg of the shorts and take a small profit.
An even better variety is the variable ratio write. The risks with this one are very small compared to the straightforward covered call – which makes it a desirable expansion of the strategy. The “variable” portion refers to the strike. You set up the ratio, but use two different strikes.
For example, say you bought 300 shares of stock at $38 per share, and today’s market value is $39. You can set up a variable ratio write by selling two 40 calls and two 42.50 calls. Now your premium income is increased, but your risk is not that much higher, because all of the calls are OTM. If the stock price rises to $40, you have no immediate market risk, because the higher strike is still OTM. But if the price continues to rise and approaches the $42.50 threshold, you can close or roll forward one or both of the higher-strike calls.
Remember, with the call, you offset the exercise risk by owning 100 shares of underlying for each call sold. When you sell a short put, however, you cannot cover the position in the same way.
But uncovered puts are not as risky as uncovered calls. That’s because the underlying price cannot fall indefinitely, though the price can rise indefinitely (at least in theory). So in the worst case, your risk with the short put is the difference between the strike price and zero. (The price can’t go negative.) However, the true maximum risk is the difference between strike and tangible book value per share.
A couple of rules here.
First, focus on puts expiring within one month. That will help you maximize your profit potential. Time value is going to evaporate very quickly, so even if the stock price falls below the strike, you can often close the short put at a profit ITM. You can also roll forward the short put. However, the likelihood of expiring worthless is quite high, so the short put, like the covered call, is a potential cash cow.
Second, the risk here is exercise, in which case you have to buy shares at the strike, which will be above market value. So if you are going to write short puts, make sure you consider the strike a good price for the underlying. Be realistic about the potential of exercise at any time. And be willing to either hold onto shares or develop a strategy for offsetting the paper loss.
In my next article I’ll cover insurance puts, leap options, spreads and straddles.
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Binary Trading Strategies 2020 – Best Binary Options Strategy
Developing binary options strategies can be a very difficult task if you don’t know what you are doing. This is why you should be practicing your method for quite some time before the live account gets going. There are several things you can do when it comes to a strategy. Learning everything you can about the markets you want to trade is the first and foremost part of the process. Without common knowledge of the asset you want to trade the likelihood of it working diminishes greatly.
What does it take to create a winning strategy? First of all, it takes a lot of dedication. Developing simple binary options trading strategies is a key to success. You may put in hours upon hours of time into making a working method. The key is not to get discourage if you aren’t successful at first. During the development you will learn the markets so well, that a hidden gem may pop up and save you. Keep pushing to find one that works. Also, don’t try and find or build the holy grail of binaries. The odds of this are zero. There are no sure bets in trading or safe harbours. All you need is a better winning percentage than losing. We’ll break down some of the things to help you get started on you strategy development process in our binary options trading school.
Binary Options Trading Strategy
If you are a better than average trader and can understand the markets this is where you want to start. You feel like you’ve watched the markets for some time, and you are ready. You must think about what might work and might not work. Rule out all the garbage so you don’t waste your time. Take a look at what you’ve done so far.
Are you a short-term or long-term trader? Are you looking to take 60 second binary trades or daily? Bring all the information to the table and then go from there. Once you have this you can start picking the assets you want to trade. Look for patterns on the charts (trading with candlesticks) or use indicators to help you decide. Price action is your friend so make sure you include that as well. You have a lot to consider. After a while things should come together for you to start testing. If you find something that has potential, you must backward and forward test. You’ll be happy you did before real money is at stake.
You need to pick a broker where you will apply your strategies from our binary options brokers list. Be sure you do not find a random broker or an offer you mysteriously received in your inbox. You can check out the IQ option platform, which is the best trading software in our opinion. If you reside in USA you should read our Nadex review.
Copy Someone Else’s Strategy with a Binary Options Robot
Don’t feel bad copying another traders work with binary options robot. Take a strategy you found in Binary Options University or in a book and do your own testing. Be sure it works the way the developed says it does. Again, test and test some more. This will help you over the long run. If you find some success after a while you can then bring it to the IQ Option trading platform. Over time you will see if it is successful or not. Again, don’t get down if it doesn’t work. This is a long process.
Free Binary Options Trading Strategies
If you are feeling really good about your fundamentals of binary trading skills, you can take someone else’s strategy and make it your own. The strategies we suggest to apply are all free binary options trading strategies. We do not charge you to use our website and large portfolio of websites. You can apply a moving average or some kind of trading indicator to help rule out the noise. There is so much you can do to an existing strategy to make it that much better. Don’t try and reinvent the wheel if it is working. A lot of times people tweak methods and make them worse. This leads you to believe the original strategy isn’t good. You can always change what you have, but remember you won’t know for some time if it is good or not.
Test the Binary Options Trading Strategy
As mentioned above, this is probably the most important part of developing a strategy. Testing it can save you tons of money. We would say time, but the fact is it takes time to practice and make it right. Some have tried to trade with binary options robot where others have been chasing higher binary options payouts via touch no touch binary options.
How do you test a strategy? Easily, all you have to do is open a 24option free demo account or alternatively use the binary.com app and you are well on your way. You of course need the charting software to manage the price action. Bring the two together and you are well on your way. No matter if you are using indicators or just plain price, you have to put it to work and see if you get a decent winning percentage.
4 Simple Binary Options Trading Strategies
One of the biggest differences between binary options trading and simple gambling comes from the fact that gambling requires little or no strategy and is based more on probability and “luck.” Options traders rely on more complicated approaches, however, but formulating a strategy can seem incredibly difficult in the early stages. Here, we will look at some of the factors to consider when you are developing your strategies in order to ensure that they meet your investment needs and allow you to use your strengths to maximize gains.
1: Selecting Your Time Frames
One of the first factors to consider is the trading time frame, and it can be argued that this is even more important for binary options than it is for other types of trading. This comes from the fact that your trading time period must be outlined before the actual trade is even open.
Selecting your time frame will depend on a variety of factors. What type of trader are you? How much time (on a daily basis) do you have to devote to managing your trades (and in looking for opportunities)? Do you prefer a fast-paced approach (such as those seen in 60 Seconds options)? Or a more conservative, long term approach (using weekly or monthly options expiries)? Are there any economic events (such as an interest rate decision or corporate earnings release) which will affect the performance of the trade?
All of these factors must be addressed when defining the parameters of your trade, and the results here will vary from person to person.
2: Selecting Your Binary Trading Assets
The next element in formulating your strategy is to decide on your trading assets. Do you have a strong knowledge base for a particular asset type? If, for example, you have a firm understanding of the stock market (and are able to interpret earnings statements) it will make sense to focus your attention on those markets. Alternatively, if you have a strong understanding of macroeconomics (constructing trades with economic data), you might prefer to focus on commodities or currencies.
There are factors that have a special influence on each these asset types, so it will be important for you to be able to actively trade during those events. For commodities, this might include events like the weekly inventories report in oil, whereas in currency markets it will be important to monitor the markets when major central banks are conducting their meetings.
3: Technical Analysis or Fundamental Analysis?
After you have decided on your trading assets and time frames, you will need to determine your forecasts for price direction. To do this, traders will either work from technical (chart) analysis, fundamental analysis (a study of economic reports), or some combination of the two. If you tend to be more skilled in areas of math and probability, you will likely be better suited for chart analysis. For the more “right brained” trader, this time might be better spent assessing recent economic data that is likely to influence the prices of your asset.
Most traders will use a combination of these two strategies, waiting for a major economic event to generate an overall bias (for prices to move either up or down), and then use technical chart analysis (using price charts) in order to decide on exact price levels to establish the trade. This can be helpful in increasing the probability for a successful trade, as it ensures your trade is supported by economic data and asset valuation.
4: Use Strengths When Formulating a Binary Options Trading Strategy
Formulating your binary options trading strategy can seem like a daunting task. To be sure, forecasting the future prices of an asset is complicated. But when we break down the process into its component parts, the process does start to look attainable. Most of these elements will be based on your investment needs.
Do you want to be an aggressive trader (higher risks and rewards), or do you want to take a more conservative approach (extending your trading time frames)? Fortunately, the markets have evolved in ways that cater to traders of all styles and investment goals. So, no matter which avenue you choose, there is an accompanying binary trading strategy that can be matched to your trading character.
10 Tips for Winning Trading Binary Options Strategies
Strategies are an extremely important part of trading. Some binary options trading strategies are proven to work extremely well, while others may be shared with others prior to being fully tested. The following 10 tips can be used regardless of strategy and trade type. Each of these can help prevent substantial losses and should also help in the accumulation of higher levels of profits.
1:Never test a strategy by investing any amount that will make it difficult to absorb a loss.
Trading does involve risk and no strategy can place the trader in the money 100% of the time. Only invest amounts that equal a small percentage of your total account funds. Your binary options trading education is important to remember while trading.
2:Money management skills should not be ignored when using strategies.
The same principles of fund management should still apply regardless of whether the trade is extremely basic or strategy-based.
3. Be patient
When investing smaller amounts in order to test strategies, don’t expect to generate substantial profits. Patience is a virtue, and having this trait will allow for reasonable trades to be made while important skills are gained.
4: Never force any trade, regardless of how desperate you are to test a strategy.
Market conditions must be considered, and analysis should be completed. Profits most often come from waiting for the right trade and then purchasing a contract. Forcing a trade is never a good thing.
5: Remain aware of financial economic data releases each day.
These can greatly impact the price of an asset and could easily render a binary options strategy useless at times. Monitor financial news at all times in order to avoid a high number of losses. Be sure you can get your money out if you win. Avoid trading with brokers on our binary options scams blacklist and instead be sure using the cashier like olymp trade withdrawal or other respected trading platforms.
6: Watch for stagnation in price movement.
It is not uncommon for asset prices to remain very stable just prior to announcements being made in regard to them. Once the latest information has been processed by investors, the asset price should quickly begin moving again. These period could either be problematic or advantageous when using certain strategies.
7: When using strategies to trade currency pairs, capitalise on time frames when liquidity is at its highest.
This is often the time period when the London and New York markets overlap and are both open for business at the same time. Other market overlaps also occur and could prove to be excellent trading times for currency pairs.
8: Always note the outcomes of trades made using strategies.
Doing so will allow you to quickly determine which strategies are most effective. It will also allow ineffective strategies to be eliminated.
9: Regardless of strategy type, when several losses occur in succession, stop trading temporarily.
This time away can be used to re-evaluate the ever-changing market and adapt to current conditions.
10: Be willing to accept that some trades will end out of the money.
Emotions will play a role in trading. By being willing to accept loss as a part of the process, it will be much easier to press on and make the changes needed in order to profit more often than not. You need to learn itm and otm meaning in finance.
Strategies are too important to be ignored. New traders will want to make use of the most basic methods before moving on to more advanced methods. With time will come an understanding of how strategies are developed and how to alter existing binary options strategies so as to render them even more effective.
CONCLUSION OF BINARY TRADING STRATEGIES
The truth is, there is no holy grail trading system. If you can create one, please let us know. However, there are strategies that work that are available now or just waiting to be created. Figure out what type of trader you are during this phase and try to develop the best method possible. Use your binary options demo account wisely and don’t force any real money into the creation process. Once you have a good sign, run with it and see what it can do for you. If you have something that works over time, then you are in great shape.
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