How to make Binary Options Work For you
Here is an ultimate guide to binary options strategy. With novel financial products being introduced in the market, you will find that a few of them are much improved compared to the once that are already present. There are some that fade away automatically as they are not suitable for the present day environment of the market. Nevertheless recently there is a financial advancement, Binary Options that is creating interest in the world of finance.
These are also called digital options or all or nothing options and were developed to do away with the complications of the conventional Call and Put options.
How Do Binary Options Work?
Simplicity of most of the binary options increases further by the detail that there is just a single strike price. Therefore, if the investor purchased a binary call option which closed over the strike price he will get the maximum payout. Alternatively when the market price falls lower than the strike price, the investor looses everything. The difference is also true for binary put options.
To give an example when the investor feels that the market is bullish and buys a binary call option of XYZ company share, priced in the stock market at $150, the option is priced at $70 which on expiry will pay out $112, which is a return of 60%. So if the market closes over $150 for the share, you get $112. In contrast, if the price of the share closes below $150, you stand to get nothing and you will face a 100% loss on your venture.
Even though the majority of binary options have one strike price like mentioned above, there are few binary options that have multiple strike prices such as the ones offered by Nadex and CBOE. They have longer than a day expiry.
Draw of High Yields Binary Options
Binary options have a fast turnaround with daily or even hourly expiration time. If traders consistently land in cash they will be able to increase trading capital and profits exponentially.
It is possible to get yields ranging from 60% to 80% when you trade binary options. Assume that there is a $200 binary option that has a 75% payout expiry in cash. The investor will get $350 in return, with the $200 investment added with $150 as 75% payout. As trading is done on hourly basis and have a high yield it is very difficult to compute the compounding outcome of the binary options return.
On the other hand if the trade goes out of the cash, based on the options and brokers, investor may recover 15% on their investments or even lose 100% of it. Typically it is hard to unload an out of the money situation.