Binary Options Examples

The binary options trading and automated trading software allows you to take a true or false view on popular financial instruments with a limited risk. The traders can take their position based on their view on the direction of an asset within a set time frame. That kind of service is offered by different binary options brokers such as IQ Option or Binray Option Robot which offers both automated trading and binary option signals to trade for your self. The traders are allowed to take the position once the market has started but before the closing hours. For instance, as a trader, you can take a position in a 2-minute expiry option once the trade has opened & until 30 seconds to expiry. You have a flexibility of selecting your preferred time frame based on view as almost all the broker provides expiry ranging from 60 seconds to hour whereas some go on to provide expiry ranges up to 6 months. Option robot is something that makes that all for you as you have set the limits how it should trade. How convenient service is that?

While taking the position in the binary options, you can buy the call options if you think that there might be a potential event which may cause considerable upside in the options, or you can buy the put option for the opposite view.

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3Easy steps to start trading
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1. Robot selects you the best assets to trade

Trading platforms have assests such as currencies, indices, commodities and stocks.

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2. Robot Predict the Price Movement

If robot predicts the price of the asset to rise, it selects Call(up). If robots prediction is that the price will fall, it select Put (down)

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3. Decide on the Amount to Invest

Decide how much you want to invest and the expiry time of the option.

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4. Collect the Winnings

Collect Winnings up to 100% of the correct trades.

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Types of Binary Options and Their Examples

The binary options trading provide a variety of options type mainly in commodities, currencies, stocks, & indices. The widely popular amongst traders are High/Low. One touch, Ladder and Range options types. Within the available option types, the High/Low types are the most popular and simpler to trade. In, this article, we will see examples for each of the options type mentioned above and how to trade them to make money.

Example 1: High/Low Option Type

This is one of the simplest binary options types wherein you buy a call or a put based on your belief whether the underlying will close above or below the strike price. The strike price in the binary options is the closing price of the previous period. A “Call” option is selected in case you believe that the asset will close higher than the current strike price at the expiry whereas a “Put” option is selected in case you believe that the asset will close lower than the current strike price at the time of expiry. If your prediction is turned out to be correct, in that case, you are rewarded with the payouts otherwise you lose your investment amount.

Example:

Let’s say you decide to trade in the USD/GBP currency pair with an assumption that it will rise above the current price. The pair’s current price is 0.7720 and you believe that the price should be at an elevated level from here after an hour.

You then login to your broker’s account and confirm that the payout is 80% for this currency pair with a one-hour expiry & at a strike price of 0.7720. After giving due considerations you decide to buy a “Call” options (High) and invest $ 100 in the trade. This is exactly similar to taking a long position in the USD/GBP pair in the forex spot market.

Outcome scenarios:

binary option examples

The table indicates that the amount of risk taken for the USD/GBP pair is limited to $ 100 only, also, the amount of payout is also limited to 80% only. This is a stark difference to the spot forex trading where in buying call or put options have limited risk but the gains are attached to the difference between strike price and expiry price. It is clear that the binary trading has a limited risk.

Example 2: One Touch Option Type

One touch binary options type has a different mechanism when compared with the High/Low options type. In the one-touch options type, the traders are offered the payout when the predicted price reaches or crosses a predetermined price targets. Generally, the target barriers are prerecorded by the broker based on market conditions and historical price movement of an asset. You just have to predict whether the underlying will touch the prices set by the broker or not, and if your prediction turns out to be correct then you are rewarded with the payout. Generally, the payouts are higher compared to the High/Low options type.

Example:

Let’s continue with our example of USD/GBP. Instead of entering in the High/Low options, you see that the broker has set 0.7775 as the preset level and you think that before the expiry the level will be crossed. The indicated payout for this one is 100%.  You buy the “Touch” option type instead of “No Touch” and invest $ 100.

Outcome Scenarios:

binary option examples table 2

You can also buy a “No Touch” option if you think that the preset limit is very high and the asset price might not touch the limits. In such cases, if the prices do not touch the preset limits than only you are rewarded with the payouts.

Example3: Ladder Option Type

The ladder option type is very different compared to both the above option types. Here, the gains are locked once the set prices are reached and the returns keep rising with each of the steps. This allows the investors to have at least some profit even if the prices come back to the original levels.

Example:

Let’s say that aftermarket results were very positive for the Facebook stock, and you expect that it will gain substantially today. The current market price of the Facebook stock is $ 150 and you have decided to invest in the Ladder binary options.

The first thing you have to do is select the expiry and this example we have selected 4-hour expiry time. Once the expiry is selected the brokerage will offer return rates something like below:

binary option examples table 3

The above table provides the rough estimations and it is not an actual prediction. If you think that the price will touch 155 before the expiry, then you can buy the call option and at any time during the expiry period, the price of the stock moved to $ 155 then you will receive 200% payout irrespective of whether the price fall after touching the levels. It is similar to one touch option but has an intrinsic difference as this can be traded only during the market hours.

Example4: Range Option Type

The range binary options also known as the tunnel bets, are a relatively lesser traded binary options compared to the above three. In this case, you are required to predict that the underlying prices will end up in a preset range at the time of expiry. The prices must trade in the predefined range to make you a winner at the time of expiry and if the prices fail to trade within the range at expiry then you will lose your risked amount.

Example:

Let’s continue with our previous example of the Facebook. Let’s assume that the results have come in line with the market expectations and the stock will not have a much movement in either direction and it will gyrate but not change considerably.

Hence, you decide to invest in the range options and your broker is offering a range of $ 145 to $ 155 for the investment. Given your belief, you decided to enter into a range trade with an expiry of 4 hours & payout of 175%

Outcome scenarios:

binary option examples table 4

The range and the Ladder option types offer relatively higher payouts. These payouts sometimes range between 300 to 400 percent of the initial investment amount and hence, they are gaining popularity amongst the seasoned players.

Finally

The binary options trading has evolved from a simple options types to complex instruments. The high/low option type is one of the simplest forms of the binary trading and for a new trader, we recommend to use this one only. However, seasoned traders can trade into other described options types to gain higher returns.

The most important thing in the ladder and range options is the understanding of an event and its impact on the underlying. If you fail to estimate them than you might end up at the wrong end of the trade. Hence, we advise our readers to conduct thorough research and analysis before taking the investment decisions.

Overall, it is clear from the above examples that the binary options trading is relatively simple and straightforward when compared to the actual instrument trading in the exchanges. The simplicity of High/Low options attracts almost all the naïve traders whereas the hard professionals prefer to trade into complex instruments like one touch, range, & ladder to prop up their profits. As always, do your due diligence before entering any trade. Happy Trading!!

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Author: Michael Allen

Michael Allen is the main author at www.binaryoptionrobotinfo.com. He holds a PhD in Economics and has worked in investment banking for 24 years.

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Michael Allen

Michael Allen is the main author at www.binaryoptionrobotinfo.com. He holds a PhD in Economics and has worked in investment banking for 24 years.

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