Keep It Simple! The KISS acronym is often ignored by those who choose to make investing complex. The reality that markets can only go up, down or nowhere is lost in self-created chaos.
By Alan Knuckman
Thursday, August 11, 2016
A Binary Option couldn’t be easier to understand. The “Yes” or “No” either pays or it doesn’t. No shades of gray, just a profit or loss with the outcome absolute.
The binary buy was looking for the US 500 to be above 2172 at market close. A premium of $33 was paid with the maximum value potential of $100.
Note that the option can also be exited anytime during the session at the prevailing market price.
$100 is the max value, a $67 profit and 200% gain on risk if US 500 is above 2172 at end of trading day - or zero if not.
Step One: Entry
A double bottom is formed at 2070 after falling for most of the session.
The downturn saw the Relative Strength Index makes a higher low to demonstrate technical bullish divergence.
Order is placed to BUY the US 500 Sep >2172 for $35 or less and is filled at $33 at 1:15PM with indicative price at 2170.
Step Two: Trade Management
2:30PM update US 500 is back to 2172 with an hour and fifteen minutes to close. Binary option value was $48 up from the $33 cost.
Cash stock market close at 3:00PM has US 500 at 2173.50 and option vale at $87.
Step Three: Session End
Session close is 2172.50 so the US 500 >2172 Binary buy is worth maximum value of $100.
KEEP IT SIMPLE.! Results: 200% return on $33 risk per contract in two hours.
This information has been prepared by Nadex, a trading name of North American Derivatives Exchange, Inc., prepared by independent third parties contracted by Nadex or reproduced form third party news agencies. In addition to the disclaimer below, the material on this page does not contain an offer of, or solicitation for, a transaction in any financial instrument. Nadex accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication.