Trading Binary Options (eBook)

Strategies and Tactics

Abe Cofnas (Autor)

eBook Download: EPUB

2016 | 2. Auflage
John Wiley & Sons (Verlag)
978-1-119-19419-4 (ISBN)

Infos

A clear and practical guide to using binary options to speculate, hedge, and trade

Trading Binary Options is a strategic primer on effectively navigating this fast-growing segment, With clear explanations and a practical perspective, this authoritative guide shows you how binaries work, the strategies that bring out their strengths, how to integrate them into your current strategies, and much more, This updated second edition includes new coverage of Cantor-Fitzgerald binaries, New York Stock Exchange binaries, and how to use binaries to hedge trading, along with expert insight on the markets in which binaries are available, Independent traders and investors will find useful guidance on speculating on price movements or hedging their stock portfolios using these simple, less complex options with potentially substantial impact,

Binary options provide either a fixed payout or nothing at all, While it sounds simple enough, using them effectively requires a more nuanced understanding of how, where, and why they work, This book provides the critical knowledge you need to utilize binary options to optimal effect,

• Learn hedging and trading strategies specific to binaries
• Choose the markets with best liquidity and lowest expenses
• Find the right broker for your particular binary options strategy
• Utilize binaries in conjunction with other strategies

Popular in the over-the-counter market, binary options are frequently used to hedge or speculate on commodities, currencies, interest rates, and stock indices, They have become available to retail traders through the Chicago Board Options Exchange and the American Stock Exchange, as well as various online platforms, allowing you the opportunity to add yet another tool to your investing arsenal, Trading Binary Options is the essential resource for traders seeking clear guidance on these appealing options,

ABE COFNAS is a leading-edge trainer and analyst in currency and binary option markets, He is a columnist for Futures magazine and the publisher of the Binary Dimensions newsletter, as well as the author of four books, including The Forex Trading Course, He is developing financial gamification platforms that enable users to learn, play, and win at trading financial markets without risk, He is also the Senior Fundamental Strategist for Market Traders Institute,

Inhalt

Preface vii

Acknowledgments ix

About the Author xi

Introduction What Are Binary Options and Why Are They Important? 1

Chapter 1 Key Features of Binary Option Types 7

Chapter 2 Identifying Profit Return Potential in Binary Option Trading 19

Chapter 3 Sentiment Analysis: New Predictive Tools 27

Chapter 4 Tracking Fundamental Forces That Impact Markets 43

A Primer for Binary Traders

Chapter 5 Basic Technical Analysis 69

Chapter 6 Advanced Technical Analysis: Volatility Tools 97

Chapter 7 Binary Option Trading Strategies 127

Chapter 8 Analyzing NFP Data for Binary Trading 163

Chapter 9 Risk Management in Theory and Practice 179

Chapter 10 Metrics for Improving Binary Trading Performance 185

Chapter 11 Performance Tools and Training for Improving Binary Option Trading 199

Afterword 205

Appendix A: Test Your Knowledge 207

Appendix B: More Training Tools and Tests 217

Index 219

Textauszug

INTRODUCTION
What Are Binary Options and Why Are They Important?

Let’s get right to the point and answer the question: What are binary options? Binary options are a type of option instrument that provide a fixed deadline for expiration, with a fixed payout. Basically, it is a yes or no bet. Specifically, the bet is on whether a settled price of an underlying market will be at, above, or below a target strike barrier, by a defined future time. For example, on a Monday morning, the trader is trying to answer the question: Will the S&P be at 1350 by Friday at 4 P.M.? If the trader anticipated this outcome, and turned out to be right, the payoff using the North American Derivatives Exchange (Nadex) binary options would be $100 per unit. If another index—the S&P 500, for example—did not reach this level, the payoff would be zero dollars. If the trader is correct, the return can approach extraordinary levels of 500 percent and more for only five days of play. This book will show you how it is possible for the average person to achieve extraordinary profits with binary option trading.

The binary option is called binary because it fits the condition of being either right or wrong—all or nothing. Binary option trading fits right into the digital era, which is based on binary logic. In fact, the binary options offered by Nadex can be considered to be part of a type of option classified as European Digital Options. But the question arises: Why are binary options important? There are many reasons that come to mind. Binary options are important, but not simply because they are a relatively new trading instrument. In fact, they are not really new. They have been used for decades at institutional levels as an over-the-counter instrument but, most significantly, traders in the United States have used them since 2008 when they became approved by the Commodity Futures Trading Commission (CFTC) and regulated through the Nadex. They are often called rebate options because of their use to generate a payment as a form of insurance when damage occurs. But let’s get back to the question. Binary options are important because they offer to the trader, in one instrument, the ability to succeed at many levels that go beyond simply obtaining a winning trade.

Binary options are an ideal trading instrument for new traders to test their skills because at a core level, binary option trading starts with anticipating direction. Being right on direction is one of the most important skills relevant to trading any market. In fact, being wrong on direction accounts for a majority of the losses occurred in any trading. Another key skill important for mastering binary option trading is risk management. A binary option trade is not necessarily a set-and-let decision. This kind of strategy is followed when a position is put on and thereafter the trader watches the screen and sees what happens at the end of the week. Set-and-let trading does not involve managing the trade during its duration. Sometimes this is an effective strategy. However, trading binary options requires a sharp sense of timing. It’s important for the trader to know when conditions are ripe for entry as well as when market conditions have changed enough to justify getting out of the way. Honing entry and exit skills in binary option trading can be transferred to other markets.

Binary options are also important because they offer a level playing field. Anyone can trade the binaries and at very low costs ranging from $5 to $90 per lot at any moment. Because the time frame is at most one week, binary option trading counters the observed tendency of traders to hold losers too long and sell winners too soon (Odean 1998).

But there are even more reasons that contribute to the value of binary option trading. Binary options offer beginning traders the ability to explore over 20 different markets. In a sense, binary option trading presents a discount tour of global markets. Perhaps one of the most important reasons of all is that binary options are regulated (through the Nadex) and offer price transparency. In this post-Madoff era of scrutiny and skepticism, trading binary options that are regulated becomes more and more salient to traders. That is why this book focuses on the regulated binary options offered at the Nadex exchange. For those who want to trade the binary option instruments that are over the counter, the skills built in trading the Nadex instruments will apply.

Binary options are an exciting product. In fact, traders in the United States have responded by participating at increased volume levels of around 30 to 50 percent per month! At this pace of volume growth, binary trading can one day become as big as forex trading, which is now approaching $5 trillion per day. In an email exchange with John Austin, the CEO of IG Markets Group North America, and a key player in creating the binary option product, he says: “There is really no competing product. I feel quite strongly that for smaller retail traders, the capped-risk nature of binaries is hugely important. Nadex’s contracts allow traders to speculate on global financial markets while using only a limited amount of risk capital and without leaving themselves open to catastrophic losses in the event of unexpected market volatility. For this reason, I believe they may become the product of choice for those who are just starting out in trading. In addition, I think their small size and self-contained nature will mean they will become the default choice for more experienced traders looking for a cheap real-money way to test out new technical analysis-based trading systems, as well as being an additional toolkit used by conventional futures and FX traders alongside their more conventional trading.”

Let’s delve a bit into the psycho-dynamic aspects of binary option trading, because, as you will see later in this book, trading binary options is not only a fundamental and technical analysis endeavor, but it is also concomitantly a psychological behavioral experience. This points to another reason that binary options are exciting: their similarity to gambling. A binary option trade has been often viewed or referred to as a bet. This is metaphorically true, but not in fact correct. Betting in gambling is quite different from a binary option bet. In gambling, the bettors face the same fixed odds and cannot affect the probability of winning. A bet in a gambling activity is indeed a passive ride. Whether it’s the roll of the dice, or the drawing of a card in a game of poker, the gambler is riding a probability wave. Finally, a gambling bet is associated with a probability about what proportion of time an outcome should occur. A binary option bet is quite different. It cannot be associated with a statistically predictable outcome.

The binary option trade is certainly a ride, but on a sentiment wave. It is also not a passive experience, and it is one that demands attention because the odds of winning are not a function of statistics. Instead, and in direct contradiction to the gambling situation, the odds of winning are determined by the skills of the trader in assessing market conditions and managing risk. In a roll of the dice, the next outcome is independent of the previous roll. In contrast, in binary trades, the next trade outcome is linked to the market behavior during the previous outcome! In gambling, the prevailing law is the law of large numbers in which, eventually, winning and losing streaks offset each other. In binary option trading, winning and losing streaks are not statistical outcomes.

Binary option trading is a prime example of the value of actionable knowledge. The binary option trader is participating in an imperfect-information game, where it’s never possible to have all the information necessary to win. It clearly takes a certain level of knowledge to play this game well. We will explore what kind of fundamental and technical skills are necessary to develop oneself into a binary option trader in greater detail in later chapters.

Nadex versus CBOT Binaries

In any case, Nadex binary options are important because they are the fastest growing segment of exchange-listed binary options. But it is important to point out that the Chicago Board of Trade (CBOT) does offer binary options on event risks. These include the CME Hurricane Index, the Snowfall Index, and the Target Fed Funds. However, the CBOT binary options remain very small in volume, are highly illiquid, and are really tailored for institutions like insurance companies (see www.cboe.com/products/indexopts/bsz_spec.aspx for a list of CBOE binary options).

There are several differences between the CBOE and the Nadex binaries that should be clarified. First, the CBOE binary options use the cash index as the underlying market for the contract. In contrast, the Nadex binaries (except for currencies as the underlying market) use the futures index. More important, the CBOE binaries have a much wider bid-offer spread. Remember that buyers pay the ask price, and sellers pay the bid price. This creates a spread, which generates money to the firm. It is also important to note that the CBOE binaries have a much lower liquidity than Nadex binaries. It also appears that the CBOE volume is constantly very low, in the range of a few hundred contracts per month. In contrast, the Nadex sees volumes in excess of 100,000 lots per month. During the important May 2 week when huge...

Produkt-Details

• Erscheint lt. Verlag: 23.6.2016
• Reihe/Serie: Bloomberg Financial
• Reihe/Serie: Bloomberg Professional
• Reihe/Serie: Bloomberg Professional
• Sprache: englisch
• Themenwelt: Recht / Steuern ► Wirtschaftsrecht
• Themenwelt: Wirtschaft ► Betriebswirtschaft / Management ► Finanzierung
• Schlagworte: Abe Cofnas • Börsenhandel • best binaries liquidity • binaries guide • binaries markets • Binary Dimensions • Binary options • binary options explained • binary options trading • binary portfolio hedging • binary strategies • Börsenhandel • Cantor Fitzgerald binaries • Finance & Investments • Finanz- u. Anlagewesen • finding a binaries broker • hedging with binaries • how binaries work • integrating binary options • investing options • lowest binaries trade fees • New York Stock Exchange binaries • profitable binary options • simple options • speculating with binary options • Trading • trading binaries • Trading Binary Options: Strategies and Tactics, Second Edition
• ISBN-10: 1-119-19419-9 / 1119194199
• ISBN-13: 978-1-119-19419-4 / 9781119194194