Range Binary Options
Binary options trading is a form of investment that involves predicting whether the price of an underlying asset will move up or down. Trading binary options can be profitable and actually good fun, but is also rather risky. For those of you new to the world of binary options, one thing you may find a little confusing is the variety of different types available. This is why we’ve decided to dedicate a few pages to explaining the difference; because choosing the right binary option type is just as important as picking the right binary options broker.
So let’s start with our guide to range options.
What are range options?
Range options are preferred by many binary options traders, and involve speculating whether an asset will stay within a specified price range over a certain length of time. This type of option is known by a number of different names, including boundary and tunnel options. To be successful with range options, the price of an asset needs to stay between two given prices and never go higher or lower than the two limits set.
How range option trading works
Range option trading has become very popular among traders, especially those who are looking for high returns. However, not all binary options brokers offer this particular type of trade. The basic principle behind this type of options trade is really rather simple, but the strategy behind using it is a little more complex. Don’t worry, though, because we aim to cover both. But first, let’s look at the basics and explain how range options trading works.
The first thing to consider is the expiry date of the option. Second comes the range of prices, which is usually fixed by the broker. As with many other binary options trades there are only two final outcomes. You either end up in the money or out of the money – it’s as simple as that. If the price of an underlying asset ends up within the specified price range you are in the money. If it ends up outside of that range, then you will be out of the money; which effectively means you lose. There are, however, a number of brokers who offer out-of-range option, which means a profit is gained if the price breaks out of the pre-agreed range, within the time period of the option.
Let’s give you an example, so you can better understand how it all works.
An example of range options trading
It’s always easier to understand a concept if there is an example. So here’s one to help you on your way:
Imagine you want to make a play on Apple’s stock, which is trading at $500 (purely an example, and in no way an accurate reflection of the real market price). The company quarterly returns are about to be announced, and you have an inkling they will fall in within analysts’ forecasts. Which means you believe the stock’s price may go up and down a little, but will be relatively unchanged. Say your binary options broker is offering a range option with a price range of between $510 and $515. We’ve already determined you believe Apple’s stock price will have very little upward movement, so you may well decide to execute your option outside the range.
Tips on how to trade range options successfully
If you think that range options are for you, then keep reading, because we’re about to share some important tips. After all, you must be interested in any advice on how to become more successful, surely.
- Keep up to date with the latest financial news. Our example above clearly shows the importance of keeping abreast of company financial affairs – otherwise you’ll only be guessing.
- Consider trading outside the range, as it is a popular strategy for many traders. This type of trade will earn a profit if the price of an asset falls outside the predetermined range.
- Spread the risk with a number of smaller range options. A popular tactic among trading experts is to spread the risk: to not pay much for a range option, and to buy more than just one or two.
Along with the information we’ve shared tucked away in your bank of binary options trading knowledge, we’d like to add just a couple more snippets of advice: It’s important to stay focused, and use what you’ve learned sensibly, by tailoring it to your own game. Having an understanding of this will help you to be more successful, and give you the experience to use range options as one of the ways you choose to trade binary options.