Types of binary options
There are several binary options offered by brokers in the industry. All of them are different and based on different principles. Some will prove to be efficient investment and others will not be worth your attention.
Let's look at few most popular types of binary options.
End of session put/call
This is my favourite one. This is typically an intraday option that the price of the underlying will be higher or lower than it is now at the close of the current session. It usually must be placed fairly early in the session but it is also good to trade after the European session is over and NY session opens.
A reasonable commission is typically added to the current price in the form of a spread. Trader opening price is slightly in loss.
Shorter intraday call/put
An intraday binary option that the price of underlying asset will be above or below the opening price at some point (chosen by a trader) during the current trading session.
Many binary brokers offer anything from seconds to one hour expiry. These options seems to be the most popular but, in my opinion carry the most of the risk.
Some binary options brokers allow to customize to a wide variety. The problem with these is, of course, finding decent bet pricing. The shorter time frames are designed for gambler rather than traders. They are priced accordingly to sucker bet. In addition some of them include a small spread to shelter the broker even more. Normal payout on these options varies around 70%, which is low and dangerous. The binary trader must show a high accuracy system to generate return. Personally, I don't know how I can be done.
You are betting that the price of the underlying asset will be between two specified prices in the point in the future. This method can prove viable in the ranging market with low volatility. In the currency market, the best example of it would be EUR/CHF. This pair has traded in the very low range for years now. This is due to the fact that the Swiss central bank"pegged" Frank to the euro to avoid further increase in the price. Every time EUR/CHF rises above 1.22, central bank would step in and sell the currency on the open market in order to depress its price.
A binary option that trader would use to bet than the underlying asset will touch the specified price in up to the specified expiry date. The options will be in money if the price level is touch before or on the expiry date. Once the price is touched once, binary option contract is closed and the trader cashes in. This is very interesting method of playing binary options. Expiration dates tend to be longer than intraday. Techniques performs well in high volatility environment and offers attractive payouts.
Binary option contract taken by trader who thinks that the price will not touch specified level at the expiry. This option cannot be exercised prior to the expiry. Trader must wait until the option expiry to close the contract and collect winnings. These options also offer attractive payouts. They depend on the price action, volatility and the distance between the current price and the specified price. As longer the price away from the current level, as higher the payout and probability of hitting. No touch binary options obviously carry substantial amount of risk with them.
This is just another binary option contract used in ranging markets. Trader get paid id the price touched either of the specified barriers. They are set above and below the current price level. These options can be used in the ranging markets with low volatility. These options seem to be less attractive than the rest of options mentioned above. They don't offer attractive payout to consider them in your portfolio.
These are most binary options available to the trader in the industry. All of them fit into different trading styles and markets offer an opportunity to generate an income.
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