Trading Gold Binary Options Using Low Risk Out of the Money Binaries
For example, Gold is currently overbought on a thirty minute chart. The weekly binary chart below shows that price has exceeded all the pivot lines from yesterday and the day before. In fact, trading Gold binary options using the Weekly Binary Options, you can see there are no binary options offered above 1217.5. In other words, Gold has moved beyond all the binary strike prices, which is somewhat unusual. Since price is at an extreme, the trader may surmise that price will reverse.
Selling the first binary option strike price below price, or 1217.5, results in a total risk of $22.75 and a potential profit, if price returns to this area, of $77.25. If price closes equal to or less than 1217.5 by 1:30 pm New York time, that is a 340% return on your investment. Remember this is a lower probability trade but your reacting to an over-extension of the market
Currently price is trading around $1237, so a twenty dollar move may seem extreme. However, a daily average of the last 254 days shows that Gold moves a minimum of $16 per day. Today, it has moved $46.70 from high to low. Again, showing that Gold has had an extreme move. Typical price behavior is for a retracement or normalization of price to occur after an extreme move like today.
Trying to counter-trend trade this type of move in futures can be very risky. Each tick in Gold future’s is worth $10, ten ticks equal one point — thus one point in Gold is worth $100. Trying to call this “top” in Gold, exposes you to $100 of risk for each point Gold goes against you. However, using the binary options, you are only exposed to $22.75 of risk, even if Gold continues up for another ten points.