Here you will find various strategies to assist you in the trading of Binary Options including:
- Call Option – When an investor invests in a call option he/she is expecting the stock to go up by the end of the option period. If the stock price ends up above the call option strike price the trade will be “in the money” and the predetermined percentage profit will be made. If the stock price ends up lower than the call option strike price than the trade will be “out of the money” and investor loses his/her investment. Example of a Call Option
- Put Option – If the investor invests in a put option he/she is expecting the stock to move down by the end of the option period. If the stock price ends up lower than the put option strike price the trade is in the money and the predetermined percentage payout will be made. If the stock price ends up higher than the put option strike price than the trade is out of the money and investor loses his/her investment. Example of a Put Option
- Straddle – an investment strategy involving the purchase or sale of particular option that allows the holder to profit based on how much the price of the underlying security moves, regardless of the direction of price movement. If a big move is expected in the underlying but the direction is not surely known a straddle is a strategy that can be used in such a case. Both strategies consist of buying an equal number of call and put options with the same expiry date. Example of a Straddle
- Strangle – an investment much like a Straddle that involves buying both a call option and a put option of the same underlying security. Like a straddle, the options expire at the same time, but unlike a straddle, the options have different strike prices. The owner of a long strangle makes a profit if the underlying price moves far enough away from the current price, either above or below. The Strangle is best used regarding volatile assets when the investor is not sure in which direction the volatile asset is moving. This position has unlimited potential for profit and limited exposure as the purchaser can only lose the purchase price of the options. Example of a Strangle
- Covered Call – a transaction in which the seller of call options owns the corresponding amount of the underlying asset, such as shares of a stock or other securities. The long position in the underlying asset is the “cover” as the shares can be delivered to the buyer of the call if the buyer decides to exercise and thus they “cover” the obligation. Example of a Covered Call
- Collar – is an option strategy that limits the range of possible positive or negative returns on an underlying asset to a specific range. Example of Collar
- Protective Put / Married Put– an investor buys shares of a stock and, at the same time, enough put options to cover those shares. The use of this strategy as a hedge on the invested stock. The buyer of a put protects himself from a drop in the stock price below the strike price of the put. In the event that the put is not exercised, the buyer has lost only the premium he paid for the put. A put by itself has a limited upside, which occurs when the stock becomes worthless. By “marrying” puts with shares of the stock, the portfolio has potential for unlimited upside if the stock goes up a lot while limiting the downside to the cost of the puts. Example of Protective/Married Put
