Fixed Cost In Break-Even Analysis Refers To The Cost That Digital Options Trading Strategy

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Digital Options Trading Strategy

Successful binary trading and binary options strategies go hand in hand. A trading strategy is a plan for why, when and for how long a trader will enter and hold a position. These trading strategies must use derivatives to achieve risk initiation and are more common in the binary options market. The options market allows the trader to take multiple asset classes to initiate risk for a particular view. The most commonly used binary options strategies are collar, covered call, market conditions, money management, protective put and straddle. Try them yourself and choose the best binary options strategy for your needs, also if you are not limited to using only one of these strategies, feel free to combine them for even better trading results!

collar A collar or risk reversal is when an investor buys a call and sells a put or vice versa. The main purpose of this binary options strategy is to offset the premium price of the option you are buying by selling another option. If the investor fully offsets the premium from the option purchased, the collar is called a free collar. The collar is a profitable strategy and benefits the investor as he does not have to pay much money on top of the premium and also the implied volatility risk is greatly reduced.

Covered call A covered call or call writing binary options strategy is when an investor or trader sells a call option with a view to increasing their portfolio’s income or mitigating the portfolio’s risk profile. Also defined as a call sold on an instrument currently owned by the investor. This binary options strategy is used for three main reasons

(1) the investor will gain by receiving income from the premium of a sold option

(2) the portfolio will be protected from market falls, and

(3) to mitigate market downside risk. This option also gives the buyer the right, but not the obligation, to buy the underlying instrument at a specified price on or before a specified date.

Market conditions Markets can be trending, range bound or volatile and assessing the particular market condition can be the difference between a successful trade and a losing trade. A trending market moves in one direction for a certain period of time and trends are classified as secular (for long-term time frames), main (for medium-term periods) and secondary trends (for short-term periods).

If the financial instrument is trending higher, the market is called a bull market trend, and if the trend is down, the market is called a bear market trend. On the other hand, a range bound market is when a financial instrument moves up and down within a narrow range. A range-bound market occurs when supply and demand for a financial instrument are equal. A volatile market occurs when the financial market moves rapidly in one direction.

Traders are looking at VIX (volatility index) to measure whether the market is volatile or will be volatile. Bullish markets have low volatility while bearish markets have high levels of volatility. A trader should study the type of market a financial instrument is currently in to determine the type of position to take.

Money management The ability to properly manage risk is one of the most important tools for successful trading. Money management is a defensive concept that keeps you trading daily. It uses two concepts trade size and stop placement. Placing a stop does not address the question of how much capital should be allocated to a position. This strategy allows traders to form an alternative method of protecting their investments.

Protective placement Protective Put allows the investor full hedging coverage. The investor is protected from break-even point to zero. The buyer has privileges to own several shares. He can also sell his shares at strike value before the expiration date. In this strategy, the investor is the buyer of the option.

Suffered This is an investment where a trader buys both a put and a call at the same strike level, with the hope that the straddle will offset the premium invested. In general, investors who are interested in learning more about binary options strategies find it very easy to trade because they can predict whether you are right or wrong, when you will have a bull or bear market, and whether you can trade multiple times with same asset.

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