Binary Options Buy Low and Sell High

Binary Options Buy Low and Sell High

 

When trading binary options buy low and sell high.  Why?  Because on the buy side premiums increase with value, as long as the indicative price is going up, and on the sell side premiums are always decreasing in the value, as long as the indicative price is going down.

Binary Options Buy Low and Sell High Video Example

In this video trade example demonstrates selling the AUD/USD binary traded between 3am – 5am New York time using the 0.7508 strike.  The premium displayed for this strike is $72.  However, when selling a binary option, the premium is subtracted from the maximum payout of $100 or $100 – $72  which is the cost for this trade example and the maximum total risk of $28 per contract, excluding exchange fees.

To take profits, you set a lower premium price.  Otherwise, if you set a higher premium, then you would end up with a losing trade.  Mathematically the equation for selling a binary option would be:

  • Premium on Entry – Premium on Exit
    • If using a $20 profit target after entry
      • $72 – $20 equals $50 
    • If using a $100 expiration value (higher premium than on entry)
      • $72 – $100 equals -($28)

In this binary example for the selling a binary, it was OTM  but if using a different binary strikes that are  ATM or ITM options, the concept is the same.  For example, if you do an ATM option with $50 of risk, simply go lower when setting your profit target.

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