Trade Binary Options 2015

How to Use Straddle and Hedging Binary Strategies to Increase Trading Profits

hedge-binary-options-strategyBinary options traders make use of a wide range of trading strategies to ensure maximum profitability. Binary options are somewhat unique in that they have definitive expiration times and offer a predetermined return on investment if a position closes in the money. Unlike stocks or currencies, which must be purchased at a lower price and then sold off later at whatever price point seems right to the trader, this means that binary options trading is affected more by statistics and the proper application of mathematical principles. Two strategies commonly used to exploit the unique nature of binary options trading are known as the straddle and hedging strategies. When used properly, these strategies can greatly increase the ability of a trader to execute profitable trades.

The straddle strategy involves opening two opposing positions, one at the top and one at the bottom of a general trend, just before a reversal is expected. An analysis of almost any asset’s price data graphed over time will reveal floors and ceilings in pricing. When the price of the asset is about to reach the top or bottom of the predominant trend, a reversal is the most statistically probable outcome. This means that a trader opening a Put position at the top of a trend or a Call position at the bottom with a short term expiry will almost certainly finish in the money. The trick of the straddle strategy is that both, rather than just one, are accomplished. When an asset is about to reach a statistically likely reversal point, a position reflecting the likely direction of the reversal is opened. Once the reversal occurs, the trader waits for the price of the asset to begin to move toward the other extreme end of its price trend. Once the price closes in on the other likely reversal point, another position is opened in opposition to the first. By opening positions at the statistically probable high and low points on the price graph, a trader opens up two trades that will most likely finish in the money, unless the floor or ceiling prices are broken through. This binary options strategy is best employed with particularly volatile assets with a wide gap between clearly defined top and bottom price points over time.

In cases where graphs are more ambiguous, hedging becomes the better option. Hedging, much like the straddle strategy, involves opening two opposing positions. In the case of hedging, however, the positions are opened at the same time with the assumption that one will by necessity finish out of the money. As the direction of the asset becomes more clear, one or more additional positions with the same expiry time as the initial positions are opened reflecting the later developments. This strategy is especially effective when dealing with currency pairs on days that important economic data or reports are set to be released. By opening two positions before everything is known and then shoring up the correct position later on, a trader can finish with all but one position in the money for a reasonable net profit.

Creative binary investors sometimes use these strategies in conjunction to great effect. For example, a trader with accounts on multiple binary platforms might use a hedging strategy on one and a straddle strategy on another if he or she is unsure of how volatile an asset will be in that time period. While it can become complicated, it is also quite possible to use a modified hedging strategy based off of straddle positions. Using the two positions at the extremes of a trend, a trader can also open one or more hedging positions reflecting the overall trends of the asset price without waiting for the price to hit a reversal point again.