Each and every binary options trade is only going to allow you to make one selection for your prediction of the upcoming price movement direction. This means that each trade is going to finish in, or out of the money. What if there was a way to select both price actions? Although you cannot select both Put and Call in a single trade, you can cover both side of the market using the Straddle strategy.
To “straddle” a trade simply means to cover both sides. The line of thought behind this binary options strategy is that when you’ve done this, one of the two trades should finish in the money. This strategy does not guarantee that one of the two trades will be profitable, as you aren’t going to find any brokers that will allow you to purchase identical trades using opposing predictions. What you will find is that brokers will allow you to enter into trades one right after another, thus allowing you to straddle the option.
In order to straddle, simply select one asset and then enter into two binary options trades using that same asset, but with opposing predictions – one Put and one Call. Expiry time selection is up to you, as this strategy can be effective using any of the expiry periods offered by your broker. These do not have to match. For example, you could select a Call option for 5 minutes and a Put option for 15 minutes. The expiry selection should be made in accordance with current market conditions.
Prior to using such a strategy, you must complete some basic math to ensure that the profit derived from the winning trade will cover the cost of the losing trade and leave you with some profit. This isn’t always easy to accomplish. Say, for example, that you want to trade both sides of a stock using a $10 investment amount. Should the return rate be 80% and one of the two trades finishes in the money, you’ve still lost money. How so? The total profit would be $18, whereas your total investment was $20.
One way to work around this would be to invest more into the binary options trade that you feel more confident about. Using the same example as above, you would decide to invest $20 to the option with the price direction that you feel more confident about and $10 to the option you feel less confident about. Should your prediction be correct, the total profit would be $36, minus the losing $10 trade, leaving you with a profit of $26. Now, if the $20 trade goes into the loss category and the $10 trade is a winner, you’ve obviously lost money, but the loss amount would be offset by this win.
Where this binary options strategy gets really interesting is in the potential for both trades to be winners or both to be losers. Since you cannot purchase the exact same trade using both Put and Call, there will always be the chance for a double-win or double-loss. The risk to reward ratio will be highly dependent on just how well you know the market. Keep in mind that no matter what strategy you use, market analysis is a must. Both technical and fundamental analysis lay the groundwork for profitable trades.
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