Straddle your options and hedge your bets
This binary options strategy is effective in lowering risk and potentially, if done right, can reap high rewards. We would recommend it for the more advanced trader who has the ability to identify short term market trends.
Each trade you make is a simple prediction on the direction in an assets price whether higher or lower than it’s current market price, that’s simple binary options. What the straddle strategy allows you to do is to effectively cover both sides of a trade by placing a PUT and Call or vice versa one after the other on the same asset.
Binary options brokers won’t allow you to place a PUT and CALL on the same asset in a single trade hence why you have to ‘straddle’ the option with two trades but with opposing predictions. Remembering to take into account the current market conditions there are a few ways you can vary your options.
- Vary the expiry times on the CALL and PUT based on market indicators to try and win on both trades
- Increase the trade bet on the most favourable option to increase your chance of ending in the money over the two trades.
- Use the same expiry time and investment amount and hope for the best. (not the best way to use this strategy)
It is not easy to get right and your timing is critical. In order to make high profits you need the market to be in a state of volatility. If the market is in a state of stability then the difference in prices won’t allow you to profit much in excess of your initial investments.
In the most favourable conditions both of your trades will end up in the money leaving you with two profitable trades. Another outcome is that your most favourable trade ends up in the money with your other ending up out of the money, but you have an overall net profit based on the increased investment on the in the money trade. The third outcome would be that you unfortunately returned out of the money for both trades and lost everything.
Overall the Straddle binary options strategy is essentially nothing more than hedging your financial bets by betting both ways.
This strategy relies on your ability to spot warning signs of volatility that may affect the market like big announcements, company mergers and product launches, so keep on the look out. Constantly analysing the financial markets you are interested in through technical analysis, candlestick charts or other means is as always vital to successful and profitable trades.