Using technical analysis to place straddle orders
Another way to use straddles is to buy calls and puts at different times based on a price action. This, like most trading, involves technical analysis. A trader can look at a chart and see that a price of an asset reaches a peak and is expected to fall. This prediction can be made by looking not only at charts but also at other indicators.
For example, a trader sees that the asset reaches its resistance level (a point at which price of it bounced back in the past.) At the same time, the short-term moving average crosses below the long-term average, meaning the upward trend is losing momentum. This is further confirmed by falling Relative Strength Index (RSI). Based on these circumstances, a trader sees a high likelihood of a decline. This is when a put option is bought.
To continue with this example, when a price approaches the bottom on the charts (a support level at which prices bounce), while moving average reverses (short-term average rising above long-term average) and RSI starts to turn around, a trader buys a call on the same asset. With this setup, the binary options trader hopes to first make gains with a put and then a call.
Betting on volatility straddle strategy
Yet another straddle strategy involves betting on volatility. This includes using One Touch options such as those offered by TorOption. One Touch options are different from other binary options (whether these are 60-second, 5-minute, or long-term options). While with latter options the trader needs to wait until their expiration, with One Touch options the price needs to reach certain level prior to expiration in order to result in a payout.
So, if a trader buys call and put One Touch options, and the volatility goes in both directions during the time the options are active, a winning on both sides takes place. Here it’s not only necessary to predict correctly how volatile the price will be, but also the time period during which it will happen. And it needs to happen prior to options expiration.
Still another strategy bets on little volatility. Here a trader makes bets on both sides (up and down) that the price will not reach certain levels, but rather will stay within a narrow band. With options, it is possible to make money whether asset goes up, down, or stays the same- but a right bet must be made.
When your binary options broker doesn’t allow straddle trading
Some online binary options brokers don’t allow certain straddles. But, traders have other alternatives to deal with it. It involves opening an account with two brokers, and then placing a call with one broker and a put with the other one.
Having more than one broker is beneficial by having access to more than one trading system. Different brokers provide different tools, and even different binary options types. By combining two systems, traders get access to expanded trading opportunities, customer service, technical trading tools, and analysis.
There are also trades that seek to take advantage of concepts in binary options trading without actually buying both puts and calls on the same asset. For example, let’s take an American dollar and commodities. Since many commodities are priced in dollars, often a rise in a dollar with depress commodity prices, and vice versa.
In that case, a trader can see a rising dollar and buy a call on it. At the same time, put on gold or oil is bought. This way, a winning bet is possible on both sides.
Binary options trading offers many options, while limiting risk. Traders can make straddle bets with as little as $20- a great way to start for many novices.
Last update: 18. April
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