A 20 Hour Trade In The Dow With Binary Options

A 20 Hour Trade In The Dow With Binary Options

Markets were volatile on Monday, ending the day in the green across all the major indices. With the Fed set to make their much anticipated announcement regarding an expected rate increase on Wednesday afternoon, Tuesday could provide volatility ahead of the news event or it could end up being the calm before the storm.

A 20 Hour Trade In The Dow With Binary Options
A 20 Hour Trade In The Dow With Binary Options Getty Images

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.

A 20 Hour Trade In The Dow With Binary Options

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

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