Learn How to Make Money with Binary Options Trading

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Learn How to Make Money with Binary Options Trading

Posted on by John Thiel

Understanding Options Basics: Real Trading Scenarios

After reading the first three articles I have written about money making strategies in binary options trading, you should have a fairly solid idea what options are, how you can make profits trading binaries, and a solid understanding of the trade lingo, as can be seen in the binary options reports glossary.

Still, in order for all the dots to connect you actually have to see an options trade being done, and then taking a risk and invest on an underlying asset.

So let’s go through a trading scenario. The easiest way to make a fast buck is to do it with a fund that tracks a major index. In this scenario, let’s use the SPDR Dow Jones Industrial Average. (NYSE: DIA). The Dow has had a solid upward uptrend for the past two years, but I believe it has a lot more potential.

So in this scenario, we will be buying a “call option” contract with a strike price of $180 (the fund trades at a 100th of the index) and expire on May 5, 2012. This means that if you are doing research and checking out posts by seasoned day traders, they would call it a May $180 call option on the Dow SPDR.

Though prices fluctuate every hour and every day, similar to stock options, the option to buy shares of the Dow fund by May with a $180 strike price was trading for about $3.49 when I wrote this article.

Now, a few things can happen.

The upward trend (or trajectory) my continue and the contract will expire “in the money”. If  that happens, the option to buy the fund at $180 will be valued at a much higher rate (or higher percentage) than the fund itself.

As the timeline progresses closer and closer to the contract expiration date, the higher the stock rises, the higher the value of the option or the underlying asset.

If this happens, you can sell the option and make some easy money, just like you’d sell a stock.

Alternatively, the opposite can happen and the Dow can take a dip. The same is true in this scenario – only in the opposite direction. The sharper the Dow takes a dip and the closer it gets to the expiration date, your stock option will be devalued in a relative fashion.

In this scenario you can either sell for a loss or wait for the stock to rise again. This can be averted if you use a protective put.

This is really a situation where you need to act swiftly and make bold decisions. Click here to see my previous articles on trading psychology, emotional trading, and in general to see if trading binary options online is right for you. Because if you fail to act, meaning to either sell the contract or exercise your right to buy or sell – by the expiration date, you lose your initial investment. If you are just starting out, you should expect to lose money, its a price you pay to earn a good education.

In a nutshell, binary options allow you to invest in an underlying security (asset); Commodities, stocks, indexes and ETF’s – with lower costs up front and higher returns on your investment. In binary options, as in all cases the higher the risk the more gains that you stand to make.

Quick recap on to binary options basics, you make a profit whether the stock is going up (calls) or down (puts).

This is why, investing in options can be so much more lucrative than trading stocks.

As you gain more experience, you can deliver better results and higher  profits.

Now I recommend you make an informed comparison and look for the best or exclusive deals. Binary Options Reports has featured reviews on the best binary options brokers you can find. Simply click here and check out any of the recommended brokers.

Don’t forget that if you are just getting started or would like to keep your “other job” and do some day trading on weekends and nights. This can be a quick and easy way to establish a new or secondary stream of income. Learning how to make a bet on future market movements by using the right financial instruments and making successful long term and short term trades are a great way to start trading exotic options (also referred to as digital options). Recommend you take a look at today’s weekly summary as presented by the CBOE.

If you fee confident and want to start trading binary options now click here.

****CBOE Daily Market Summary for Wednesday, April 25, 2012***

Ratios
Total Put/Call Ratio 0.75
Index Put/Call Ratio 1.34
Equity Put/Call Ratio 0.48
CBOE Volatility Index (VIX) Put/Call Ratio 0.76

BXM – CBOE S&P 500 BuyWrite Index
Open High Low Close
898.10 901.97 898.10 901.30
VIX – CBOE Volatility Index
Open High Low Close
17.05 17.38 16.82 16.82

Index, ETF and HOLDRs Options
Call Put Total
Volume 773,099 1,037,607 1,810,706
Equity Options
Call Put Total
Volume 1,633,854 776,505 2,410,359

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15 Responses to Learn How to Make Money with Binary Options Trading

  1. Janet Kaplan says:

    How can I use straddling to make money on binaries? I have a few strategies I use all the time but straddling is a bit tricky, have any tips?

  2. Marty Fimmerstein says:

    How do you choose the best undervalued stock for investing in binary options? And how do you think Brent Crude Oil will perform during the next 14 days? I’m thinking 110 – 115 Dollars a barrel is healthy.

    • John Thiel says:

      Hi Marty,
      Generally speaking one of the most undervalued stock is XOM, and its always been a star in my investment portfolio. Specifically for binary options, you would have to rip the asset index apart and do the research. The assets vary depending on the broker you choose. Concerning Brent Crude oil I would have to agree with your analysis, oil has bounced back and rightfully so. Keep in mind the whole Middle East situation with particular emphasis on the oil embargo on Iran and the recent statements made by Israeli policy makers about a military operation in Iran will heavily effect oil prices since Iran is the 4th biggest oil producing country (before the embargo began). Check out the reviews section for reference. JT

  3. Jim Zonnenshein says:

    If the fed decides to engage in quantitative easing how will this effect the prices? Also, what is the minimum deposit for Traderush; and is it a reliable binary options broker?

    • John Thiel says:

      Hi Jim,
      I would expect the ECB to engage in this policy, the US economy has a more robust and transparent economy. However, if this happens, it would effect the yield of the financial asset. This action creates excess reserves and lowers the yields. This is a very risky policy and may diversely effect the inflation. As for Traderush, it’s 200 USD/GBP/EUR minimum deposit. Make sure to read about the trading volume requirements before making trades.

  4. Phil Galvaston JR says:

    What is the difference between realized and implied volatility when it comes to the VIX and binary options trading?

    • John Thiel says:

      Hi Phil,

      Realized volatility AKA “historic volatility” is the actual variance in the price of an option over time. Realized volatility is measured in terms of the standard deviation of the price from an average.

      Implied volatility is the market’s prediction of future volatility. In laymen’s terms, it can be seen as the difference between an option’s price in theory — based on the actual stock price calculation, the option’s strike or contract price, expiry time and other given variables — vis-a-vis the option’s de-facto trading price.

      What does this actually mean? It means there is a disparity between the predictive analysis and how things eventually pan out in the end. This is called RISK, however, the more research you make the lower your risk is. Be careful not to engage in too much research, otherwise you will end up an egghead with a lot of numbers crunched up but no money to show for it. In binary options, as is the case in all forms of trading, it means you have to understand that you can only predict up to a certain level of accuracy.

  5. Payton Schwimmer says:

    Does optionbit take trades on the S&P Dow Jones Indices? The DJUBSTR is doing great the last 5 days and I want to start making trades on binary options.

    • John Thiel says:

      Hi Payton,
      The answer is yes, but I would like you to check out the asset index yourself because its always a little different when you try out new things. You need to get a feel for it and see how it works. In any case I recommend you check the reviews section, there are various binary options brokers offering you very interesting investment options in stock, currencies, commodities, and indices as well.

  6. Austin Wilkerson says:

    I purchased AMAT on the downside two days ago and it has been performing very well for me. How can I make money from this on binary options?

    • John Thiel says:

      Hi Austin,
      AMAT has been performing very well recently. Although from what I see the industry is moving away from investing in semi-conductors and is more focused on internet stock and other financial assets. In binary options I’m not sure this is relevant, simply look at the asset index and see if the stock is offered. If not, simply choose a stock you like, open an account, and deposit. If you are just starting out stay away from 60 second options since the risk factor is way too high, I believe there is no skill involved it’s purely financial betting.

  7. Oscar Martin says:

    How will the Eurozone crisis influence EUR/USD margins on binary options forex trading?

    • John Thiel says:

      Hi Oscar, its fairly simple to see the EUR has been losing ground to the greenback. In my opinion this trend will continue to grow as long as Mario Dragi and the ECB continue with their current policies. The USD will continue growing also because China has not displayed clarity, transparency, and resolve about fiscal policies. There is much regulation needed there. Furthermore, China is slowly making a transition from a producer society to a consumer society and this will definitely have an effect on trade deficits and trading policies as this country continues to change and evolve. Checkout http://finance.yahoo.com/q?s=SINA for reference on a very interesting Chines stock.

  8. Will Baker 3rd says:

    Do you believe the ECB led by Mario Dragi muster the resources needed and create a more clear and transparent fiscal policy concerning Greece, Italy, and particularly Spain which has been particularly troubling recently due to the ridiculous returns on government bonds. I am sure they will default when these bonds reach maturity. Also Does Traderush allow trading on bonds, ETF’s and CFD’s?

    • John Thiel says:

      Hi William,
      Long time no chat, hope all is well with your new VC fund. You know as well as I that the ECB has been less than vigilant when it comes to these countries. Apparently Greece is the smaller problem as you can see. The bigger problem is Spain and also Italy, although less in my opinion since it has a more robust economy. If the Spanish government defaults on bonds like GSPG10YR we will all suffer. I think the ECB is not willing to face this type of economic fallout just yet. The Spanish government understands this and therefore have been acting irresponsibly, this will however change at some point as the German financial leadership will eventually make some tough decisions. As far as I know Traderush des not allow trading on bonds, ETF’s and CFD’s, be make sure to check their asset index.

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