If you were looking for a trade that benefited from volatility leading up to Wednesday’s announcement, then binary options provide a variety of choices to consider. Here is a chart of the Dow 30 as of 8:15 p.m. Eastern Time Monday night. Along the right hand side of the chart are the available binary options expiring as of 4:15 p.m. Eastern Time Tuesday. As I write this, there are 20 hours remaining until these options expire.
If you were looking for the market to go up on Tuesday then you could buy a binary option out of the money above where the market is currently trading. One of the binary options you could choose in the Dow 30 is at the > 17,360 level for $38. With this contract your maximum defined risk would be your purchase price of $38, and your maximum profit would be $62 (exchange fees of $0.90 per contract excluded). You would be risking $1 for every $1.63 in profit, and you would need the Dow to rise at least 72.41 points by the close of trading at 4:15 p.m. on Tuesday.
If you were bearish then you could sell a binary option below where Dow 30 is currently at for a similar trade on the opposite side of the market. One binary option contract you could choose is to sell the >17,220 binary option for $61.50. Your maximum defined loss would be $39.50, with a maximum profit of the $61.50 you received on the initial sale. You would be risking $1 for every $1.55 in potential profit. In this bearish binary option you would need the market to decline 67.6 points by the close of trading on Tuesday to have a winning trade.
In each of the trades I’ve discussed you could be profitable if you were correct only 40% of the time. The market would have to move about 70 points in either direction for these out-of-the money binary options to be profitable. Binary options provide many opportunities for traders seeking defined risk trades in volatile markets.
Note exchange fees not included in calculations