Short term premium collection With Binary Options Risk

Short term premium collection With Binary Options

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Short term premium collection Quick overview of Binary Options § Binary options ask a simple question, will a given market be over a certain price level (strike price) at a specified time § There are three components to this binary question: § Underlying market § Strike Price § Expiration time § They are considered “binary” as at expiration there are only two possible outcomes, the market either settles at zero or 100

Short term premium collection Quick overview of Binary Options § It may be helpful to think of this as a yes or no question: § If the answer to the question is “yes” at expiration, the option settles at 100 § If the answer to the question is “no”, at expiration the option settles at 0 § Buyers are basically saying they believe the answer to the question will be “yes” and they are rewarded when the binary settles at 100 § Sellers are basically saying they believe the answer to the question will be “no” and they are rewarded when the binary settles at 0 § Important note: You do not have to wait for expiration to close your position

Short term premium collection Quick overview of Binary Options

Short term premium collection Quick overview of Binary Options § Range of 0 (floor) to 100 (ceiling) § $1. 00 per point - 100 points possible § $100 total value per contract § All contracts fully collateralized § Collateral = maximum risk on trade § Buyer’s collateral = difference between buy price and 0 § Seller’s collateral = difference between sell price and 100 § Buyer’s max reward = difference between buy price and 100 § Seller’s max reward = difference between sell price and 0

Short term premium collection Quick overview of Binary Options Buyer Seller 100 75 75 50 50 25 25 0 0

Short term premium collection Times affect on price § Price could be thought of as reflecting the probability of an event occurring. – Some refer to Delta § Time is one of the three factors that impacts the price of a binary option. § Rule of thumb – the more time left to expiration the closer to the midpoint of 50 the contract will be priced § Price does not have to move in linearity with the underlying market § If the underlying market doesn’t move, ITM binary options will move toward 100, OTM binary options will move toward zero.

Short term premium collection Times affect on price EUR/USD > 1. 1400 at 3: 00 PM 1. 1400 18/22 42/46 32/36 0/0

Short term premium collection Times affect on price EUR/USD > 1. 1400 at 3: 00 PM 52/56 78/82 64/68 100/100 1. 1400

Short term premium collection Strategy Basics § Low to medium volatility § No scheduled news releases § Have a reason – support/resistance, etc. § Skip the first hour of futures trading / open of a region in currencies § Close out at least 30 minutes before the close of the underlying futures market § No credit until trade is over § Recommend to close out small losses

Binary Options Strike Chain

Short Term Premium Collection - Buy • • Not inclusive of exchange fees Buy @ 78. 00 Maximum Risk - $78. 00 per contract Maximum Profit - $22. 00 per contract May close out early

Buy @ 78. 00

Short Term Premium Collection - Sell • • Not inclusive of exchange fees Sell @ 28. 50 Maximum Risk - $71. 50 per contract Maximum Profit - $28. 50 per contract May close out early

Sell @ 28. 50 Buy @ 78. 00

Short term premium collection Trade breakdown § Leg #1 – § Max Risk - $78. 00 per contract § Max Reward - $22. 00 per contract § Leg #2 – § Max Risk - $71. 50 per contract § Max Reward - $28. 50 § Combination – § Max Risk - $49. 50 § Max Reward - $50. 50 Not inclusive of exchange fees

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