Every trader is unique. In fact, I have never run into two traders who see market opportunities in the exact same way. Every trader has his or her own view of the market, which is what creates the market ultimately. In this article, I will detail how two specific instruments can be used, the one-touch put and call, for driving profits that combine two separate views, which are market volatility and market direction.
I use the binary platform at www.optionfair.com for trading the instrument. It offers one-touch puts and calls on a broad range of assets. The Euro v. $US is my favourite. Currently the rate is at about the 1.3000 level. This ‘big figure’ might spark a major move in one direction or the other. However, there will most likely be some action at that level as the market is deciding whether is is a resistance or support level.
A trader decides it is a resistance level now, and that any move that is above the level will most likely be ‘sat on.’ In other words, the upside scope is limited. So how can this view be taken advantage of by the trader? He can sell the upside one-touch call. On optionFair this provides a 77% return. With a 1.3000 rate, the one-touch call level might be offered at 1.3001 for the next hour. So when you sell the 1.3001 one-touch call with a 77% return, it means you will get back $177 for each $100 invested as long as the rate doesn’t increase to 1.3001. So if you think the market is currently on a downward path, then it covers you from all the ‘noise,’ the short-term, small fluctuations that will bring the market back up in small amounts. There is, in effect, a small buffer that is built into the one-touch call seller’s projection. A small amount of leeway is given to the one-touch call seller by the ‘house,’ which is optionFair in this case.
Working Out The One-Touch Level
A 77% return is offered by optionFair on the Euro v $US not touching and touching the 1.3001 level. So how is it worked out to determine what the level should be? The 77% no-touch or touch means a level has been worked out where they believe there is a 50:50 chance for either. How do they calculate this level? The one-touch call price is twice what the same time to expiry and strike vanilla or European binary call option is. So if optionFair thinks there is a 50% chance that the Euro v $US will touch 1.3001 that means that equivalent price of the binary call is 25. There is only a 25% chance that the Euro v $US rate at expiry will be above 1.3001. However, there is a specific input that can be challenged that is part of their calculation, which is their implied volatility level. If optionFair thinks there is too high of an implied volatility, then the one-touch call should be sold since the one-touch level is set too high. However, if it has been set too low, the one-touch call should be purchased since the chances of it touching are higher than 50%
How To Trade The One-Touch Call And Put
When there is no clear idea of whether the rate will be going up or down from the 1.3000 rate but you think it is going to be volatile, you can buy the one-touch put and the one-touch call. However, this trade has a particular risk. You will have $200 at risk if you buy $100 of each. If there is a quick fall in the market and the lower barrier gets hit, your return is $177, with $23 potentially still at risk from the one-touch call exposure. Your choices are to cash in immediately or run the one-touch call and hope the underlying bounces back to 1.3000 and then moves higher and reaches the upper level so that an additional $177 is returned. One still is in profit for as long as the one-touch call returns stays over $23, and you are still in command. Controlling the position is much easier from a winning standpoint instead of having your back against the wall.
Binary options trading goes beyond the over and under’s. Traders who have a good grasp of the underlying volatility can realistically take the ‘house’ on of the binary options platform through forming a better opinion of the volatility in the market. That is what is involved in options trading, assessing market volatility. This applies as much for binary options as it does for conventional options. The judgment, when aligned with being able to assess the direction of the market, can offer the ideal springboard for rewarding profits and trading.