Binary Options: Strategies for Directional and Volatility Trading

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Options strategies can favor movements in the underlying that are bullish, bearish or neutral. In the case of neutral strategies, they can be further classified into those that are bullish on volatility and those that are bearish on volatility. Bullish options strategies are employed when the options trader expects the underlying stock price to move upwards. Bearish double barrier binary options promotions best binary options brokers 2015 binderietdk strategies are the mirror image of bullish strategies.

They are employed when the options trader expects the underlying stock price to move downwards. A bull call spread is constructed by buying a call option with a low exercise price Kand selling another call option with a higher exercise price. Often the call with the lower exercise price will be at-the-money while the call with the higher exercise price is out-of-the-money.

Both calls must have the same underlying security and expiration month. Furthermore, assume it is a standard option, meaning every option contract controls shares. A bull put spread is constructed by selling higher striking in-the-money put options and buying the same number of lower striking in-the-money put options on the same underlying security with the same directional volatility trading option strategies books date.

The options trader employing this strategy hopes that the price of the underlying security goes up far enough such that the written directional volatility trading option strategies books options expire worthless. Furthermore, assume again that it is a standard option, meaning every option contract controls shares.

Neutral strategies in options trading are employed when the options trader does not know whether the underlying stock price will rise or fall. Also known as non-directional strategies, they are so named because the potential to profit does not depend on whether the underlying stock price will go upwards or downwards.

Rather, the correct neutral strategy to employ depends on the expected volatility of the underlying stock price. Neutral trading strategies that are bullish on volatility profit when the underlying stock price experiences big moves upwards or downwards. They include the long straddle, long strangle, short condor and short butterfly. Neutral trading strategies that are bearish on volatility profit when the underlying stock price experiences little or no movement.

Such strategies include the short straddle, short strangle, directional volatility trading option strategies books spreads, long condor and long butterfly. In finance, a butterfly is a limited risk, non-directional options strategy that is designed to have a large probability of earning a small limited profit when the future volatility of the underlying is expected to be different from the implied volatility.

A long butterfly position will make profit if the future volatility is lower than the implied volatility. A short butterfly position will make profit if the future volatility is higher than the implied volatility. A short butterfly options directional volatility trading option strategies books consists of the same options as a long butterfly. However all the long option positions are short and all the short option positions are long. The double option position in the middle is called the body, while the two other positions are called the wings.

The option strategy where the middle two positions have different strike price is directional volatility trading option strategies books as an Iron condor. From Wikibooks, open books directional volatility trading option strategies books an open world.

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