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Top Digital Options Strategies

April 08, 2012 | Comments: 0 | Views: 113

In fact, there are two main tactics to make profits from digital options trading! In the following paragraphs we explore the most common speculation and hedging strategies used in digital options trading today.

Speculative binary options strategies

Speculative digital options strategies typically consist of a trader implementing a some sort of technical analysis to pick high probability binary options entry points. Candlestick charts are used pretty extensively in these types of digital options strategies as they are pretty adept at identifying short-term trends, something all digital options traders strive for. (This is also exactly the method so called trading signal services are using to determine the trades they suggest to their members!)

When implementing speculative digital options strategies, traders tend to wait until the last few minutes prior to the lock out period to place a trade. Waiting until the last minute to place the binary options trade minimizes the amount of time the trader needs to be correct in his/her short term directional choice.

Stocks tend to move around a bit and it is very common for trends to reverse after a few minutes, that's why its a good idea to wait till the last minute to place your trade, so it becomes a lot easier to determine the direction correctly.

Binary options Hedging Strategies

The hedging binary options strategy can be seen as the direct opposite. While it's very risky to speculate with binary options, hedgers placing their trades as early as possible, monitor their trades performance, in order to choose the right actionplan in order to minimize their risk and increase their profits.

Hedgers usually implement one of three options strategies during the expiration cycle.

  1. Purchase a binary call (put) option early in the hour and, if the stock moves in the correct direction, buy the opposite binary put (call) to lock in a profit zone and reduce the level of downside risk.
  2. Buy a binary call (put) option early in the hour and, if the stock moves in the appropriate direction, purchase another binary call (put) to essentially double the trade amount.
  3. Purchase a binary call (put) option, and if the stock moves against them, quickly purchase the opposite binary put (call). This digital trading strategy essentially locks in a loss unless the hedger is able to place another trade to create a profit zone.

Both binary options strategies are used massively by professional traders. Even while the risk is much higher in speculative digital options strategies, the reward is normally high enough to make an overal profit from your speculative options trades. For those searching for a trading strategy with a minimum amount of risk, the hedging strategy is the right decision.

For more information about binary options signals, digital options trading and other helpful tips, be sure to also visit my binary options broker comparison in order to find the best broker for your needs.

Source: EzineArticles
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