How to reduce risks on binary options
Forum Trading 2 Binary Options to Reduce Risk and Increase Profits It is a called a straddle or hedged trade, and involves taking two binary option positions in the same asset. It has the potential to reduce risk, and double your gain.
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Step 1. Initial Trade Like any binary options trade, pick an asset and choose your direction.
Say the price just broke above a descending trendline indicating the downtrend is over and the price could begin to trend higher.
Buy a call option. Draw a trendline on the new uptrend, and as long as the price stays above that trendline you have nothing else to do because your option will expire in the money.
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If the price drops below the upward trendline though, you need to make another trade. Step 2.
Opposing Trade You are in a call option because the price is advancing in your favor. We now do not know if our call trade will finish in the money.
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Therefore, when the price breaks below the trendline we buy a put option. This way if the price continues to decline we will profit from the put option.
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Scenarios If the price continues to advance on the first trade, then there is no second trade. If the first trade goes out of the money immediately and continues to trend against you, you do nothing.
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The price would need to whipsaw and trade below the call strike at the time of the call expiry and then surge above the strike price of the put at that expiry. This is unlikely to occur, but is possible.
Final Thoughts The strategy pays off if the price settles in between your call price and put price. The larger the area between the call and put price the greater the likelihood this scenario occurs.
Trading 2 Binary Options to Reduce Risk and Increase Profits
But if your call and put are 30 pips apart, that provides a wider area for the price to settle in, more likely to result in a profit on both trades. If your first trade is very far in the money, and is unlikely to expire out of the money, then there is no real reason to take a second trade. Only take the second trade if looks like the price is reversing—trendlines how to reduce risks on binary options be a useful tool here—because this way you hedge your bets.
Due to the reversal it is unknown if the first trade will profitable, so by taking a second trade in the opposite direction you reduce your risk if only one finishes in the money, and you double up if they both finish in the money.