Each investor has his owns methods and systems of trading binary options. The strategies listed here are not fool proof nor is the list exhaustive, but they are industry accepted methods which are deemed beneficial by many investors.
This is based on the concept that if an asset suddenly moves in one direction, it is unlikely to remain at that peak but will move back towards its original position, if not all the way. So, an investor should buy an option, Call or Put depending on whether the price has risen suddenly or fallen suddenly, on the assumption that it will soon return and stabilize. Of course, no-one knows when an asset has reached its peak. So close monitoring of the asset and researching why it peaked is vital to deduce the likelihood and timing of its return.
This strategy is more complicated as it involves buying both a Call and Put option on the same asset. The premise is to straddle the asset at a low point and at a high point, so that the area in between the two options can be a double success for the investor. This is often used when the volatility of the asset is high and so an investor wishes to protect himself. An expiry level in between the two strike prices would be ideal, however if it falls outside of this parameter, then at least one option would expire in the money. The Call and Put options do not have to be bought at the same time. Rather an initial option can be bought with a longer expiry and the second purchased once the asset’s direction is more established.
Note that the straddle in binary option trading is different from with vanilla options since the purchase price and exercise rights differ between the two.
The Knock on Effect
This is the most logical of the strategies. The idea is that a move in one asset will have a knock on effect to another asset. For example, the price of a stock may affect the price of the index in which it trades. Or if a country heavily relies on a particular asset, then a change in that commodity’s price may affect the country’s exchange rate. The key here is to understand the connections between assets and be prepared for movements in either one.