One of the nice things about trading binary options is that you can trade almost any type of asset with them. They cover currency pairs, commodities, stocks, and major indices. This gives you a ton of freedom to trade what you want, and because there are so many assets covered, you can trade something at any time of day. You don’t necessarily want to do this, but it is an attractive feature.
One other thing that many beginning traders do not realize is that binary options can be just a small part of your overall trading/investing portfolio. This is the strategy that we are going to discuss here, binaries as a part in a bigger investment portfolio. The combined market stall approach uses a combination of different trading tools when your target asset stalls on hitting its target price. When used like this, binaries do not become any less important, but they become a way to help alleviate short term risk in other markets, and this can help boost your yearly return regardless of what the rest of the market might be doing.
How do we apply this
This strategy assumes that you already have something else going on with your trading or investing. Maybe it’s just a 401(k) at work, or you’ve bought a few shares of a mutual fund. Maybe you are already a position trader, buying stocks when they look like they will go up over the next couple months, and then selling them once you’ve hit your goal price.
Here’s how it works. You have your previously existing positions, but maybe they are not doing quite what you want them to do. For example, if you bought 20 shares of Apple, and you were expecting it to go up $10 in the next month, but so far, it’s only dropped in price, you can ride that downward momentum with a series of binary put options, profiting when Apple’s stock price drops over the short term. These types of market fluctuations are common, and holding a stock for just a short period–even what might seem like a long time like a few months–can be dangerous. There’s no way to predict short term market fluctuations with 100 percent accuracy, and buying stock exposes you to risk. Major hedge funds would take preventative steps against these types of occurrences, but most people do not believe that they have the resources to do so. But with binaries, you can offset short term losses in a way.
So, if Apple drops, you are going to lose money in your holdings. Your long term vision might still be accurate, but it might take more than the month that you envisioned. When you are able to predict these short term losses, though, you can time your binary trades to take advantage of them. If Apple’s trading at $118, and you expect a price range of $128 over the next month, something may happen to force you to push that timeframe outward. Instead of ending your trade early at a loss, you can put money into binaries, profit when the price drops down to $115, then reinvest those earnings at the lower price in Apple, and see an even bigger return when the price does go up in the future.
Let’s say you have 50 shares of Apple, bought at $118, minus a $20 commission. That equals $5,880. When the price goes up to $128, you sell them, minus another $20 commission, for $6,360. That’s a $460 profit. If prices drop down to $115, let’s say you put together 30 binary put option trades at a 74 percent profit rate, 22 of which are successful, at $100 each. This gives you an additional amount of $828 to invest in Apple. If you purchase 7 shares at $116, you have an extra $792 in Apple, after your $20 fee, but at the lower price. Now, there are 57 shares in Apple. Instead of a total of $460 profit when you had hit $128, the extra $792 you put in put options increases even more, up to $896. Your total profit becomes $16 in pure binary profit, plus $896 in the binary profit plus stock gains, plus the original $460. That equals $1,372, more than double your original earnings. Rather than sit around and wait, you’ve taken action and profited off of Apple’s indecision.
Things that could go wrong
This is definitely a long term approach to binary options. It demands that traders be patient. It also requires a deeper level of the market than most beginning traders have. It requires a long term trading, or even an investment strategy that you already have in place, trust, and are successful with. A final drawback is that it requires you to have more expendable income so that you can split it among the different trading methods and still have enough capital in each to expect success.
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