Just like the title of the binary options trading strategy states, this method is aimed toward options that expire at the end of the day. This method gives you some great advantages, such as helping you to more efficiently use your time during the day. There are a number of ways to approach trading with an end of day strategy, so if the particular methods and ideas covered here don’t mesh with what you already do, don’t worry. These methods work, but that doesn’t mean that there are not others that don’t accomplish the same goal, too.
Application at the EOD
The goal of this strategy is to predict where prices will be at the end of a particular market session. In order to accomplish this, you need to have a heavy reliance on fundamental analysis and a decent understanding of technical analysis. Using a succession of call or put options is the best way to trade this, even if you find a boundary or touch option that you think would fit in with your goals. Calls and puts will almost always be easier to use here.
Let’s illustrate this a little bit better with an example. Let’s say you are trading within the U.S. stock market, and you are focusing on Disney’s stock. You know that the experts expect the company to rise by about $5 in the next year, giving the corporation a mild upward trend. If Disney is currently trading at $95 per share, but starts the day at a lower price like $94.50 for no easily explained reason, then you can now determine with technical indicators how far the company is likely to drop before bouncing back up. If that likely relative low is established, than you can take out a call option as the upward trend is the most likely outcome.
As you can see, this is a very generalized strategy at first, but you will specialize and become far more technical as you proceed. In fact, this is a really good thing to work with, most of the time. Starting with a general framework helps you to narrow down your potential trade list, and then you can pinpoint better choices as you get more and more exact. This does take some time to establish, but the big benefit of working in this manner is that you get your trades done and out of the way so that you can focus your attentions elsewhere. If you have other trades to conduct, this gives you time to do them, and as the day progresses, you can keep a handle on how things are developing and uncover even more opportunities as you go. This strategy helps you to use your time efficiently, and it helps you to hedge positions if there is an absolute need to.
Drawbacks of End of Day Trading
As you start out using an end of day strategy, you will find that there is a lot of potential for distractions. There are many competing strategies that you will come across as you do more research here, and the sheer volume of different approaches that you could conceivably take could paralyze you if you try to accommodate all of them. Start with one—the one outlined briefly above or something else that you trust—and work from there. This strategy does work, but you need to settle on what you are going to do if you want to reap the benefits from it.
Also, do know that if positions are established early in the day, there is always the potential that some sort of external event could sway positions in an unanticipated direction. Keeping an eye on this, and having a broker that allows you to end trades early at just a partial loss will help you to minimize any damage here.