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Page: TorOption: Placing binary options straddle trades

TorOption:
How to Place Binary Options Straddle Trades

Placing calls and puts using binary options straddle strategy

Binary options are an alternative to more traditional types of trading. Multiple bets can be made on a variety of assets including stocks, commodities, currencies, and indices. Traditional option strategies can also be applied to binary options trading. In this article, we discuss the straddle strategy.

What are binary options straddles

A straddle is when a call and put are bought on the same asset. By buying a call, the trader expects the asset to rise, while a put buyer bets on its decline. In some situations, the trader will make money on one side of the trade, while lose on the other. The issues arise when that straddle trade isn’t profitable.

Let’s say you bet $100 on gold’s rise with a payout of $80, and bet another $100 on its fall with the same payout. Now, if gold rose, you’d get $180 back, but on the investment of $200, resulting in a loss of $20. One way to go around it is to bet more on the side you feel is more likely to occur. By betting $200 on a call and $100 on a put, you’d get $360 from a call while paying $300 overall, a profit of $60.

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Instead of more traditional type of trading, binary options straddle strategy helps you buy a call and put
on the same asset.

Using technical analysis to place straddle orders

Another way to use straddles is to buy calls and puts at different times based on a price action. This, like most trading, involves technical analysis. A trader can look at a chart and see that a price of an asset reaches a peak and is expected to fall. This prediction can be made by looking not only at charts but also at other indicators.

For example, a trader sees that the asset reaches its resistance level (a point at which price of it bounced back in the past.) At the same time, the short-term moving average crosses below the long-term average, meaning the upward trend is losing momentum. This is further confirmed by falling Relative Strength Index (RSI). Based on these circumstances, a trader sees a high likelihood of a decline. This is when a put option is bought.

To continue with this example, when a price approaches the bottom on the charts (a support level at which prices bounce), while moving average reverses (short-term average rising above long-term average) and RSI starts to turn around, a trader buys a call on the same asset. With this setup, the binary options trader hopes to first make gains with a put and then a call.

Betting on volatility straddle strategy

Yet another straddle strategy involves betting on volatility. This includes using One Touch options such as those offered by TorOption. One Touch options are different from other binary options (whether these are 60-second, 5-minute, or long-term options). While with latter options the trader needs to wait until their expiration, with One Touch options the price needs to reach certain level prior to expiration in order to result in a payout.

So, if a trader buys call and put One Touch options, and the volatility goes in both directions during the time the options are active, a winning on both sides takes place. Here it’s not only necessary to predict correctly how volatile the price will be, but also the time period during which it will happen. And it needs to happen prior to options expiration.

Still another strategy bets on little volatility. Here a trader makes bets on both sides (up and down) that the price will not reach certain levels, but rather will stay within a narrow band. With options, it is possible to make money whether asset goes up, down, or stays the same- but a right bet must be made.

When your binary options broker doesn’t allow straddle trading

Some online binary options brokers don’t allow certain straddles. But, traders have other alternatives to deal with it. It involves opening an account with two brokers, and then placing a call with one broker and a put with the other one.

Having more than one broker is beneficial by having access to more than one trading system. Different brokers provide different tools, and even different binary options types. By combining two systems, traders get access to expanded trading opportunities, customer service, technical trading tools, and analysis.

There are also trades that seek to take advantage of concepts in binary options trading without actually buying both puts and calls on the same asset. For example, let’s take an American dollar and commodities. Since many commodities are priced in dollars, often a rise in a dollar with depress commodity prices, and vice versa.

In that case, a trader can see a rising dollar and buy a call on it. At the same time, put on gold or oil is bought. This way, a winning bet is possible on both sides.

Binary options trading offers many options, while limiting risk. Traders can make straddle bets with as little as $20- a great way to start for many novices.

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