Options trading strategies aren’t limited to anyone particular magic formula; there are several strategies that come into play and your knowledge of them will enhance your earning potential immensely. As we cannot go through all of the strategies here, this article is to highlight a highly simplistic form of trading called binary options trading.
A binary contract has two directions, up and down; similar to yes or no. How does this system work? As an investor, you’ll choose one of the available securities to trade in; normally only the securities with the largest volume are traded and decided on the amount to be invested. Once you have decided on the amount, you’ll next have to take a decision on whether to go ‘up’ meaning ‘call’ or ‘down’ meaning ‘put’. Your options expire hourly, so as an experienced investor you can execute several contracts daily. Payoff is predetermined and cannot be changed; both buyer and seller are concerned only with security.
To summarize, this really represents one of the simplest of all options trading strategies and provides that the investor needs only to take the security to invest in, the amount to be invested in the security and the direction (up or down). You need to know that you cannot sell prior to expiry but contracts expire hourly so that really isn’t a huge problem.
Let’s take a step back
As options trading strategies go, this method has several benefits; risk is controlled and it’s simple and easy to use. However, it has its part of pitfalls as well. A novice won’t be in a position to decide the trading movement (up or down) of the security without the right sort of training.