Misleading binary options strategy
I checked on multiple platforms for trading binary options, and somewhere a broker sent me advice titled "Profitable binary options strategies." I was very surprised to find out what kind of trading strategies the broker offered me and decided to share my thoughts here. If you find such a strategy on any broker site, think twice before you use it.
What does this strategy offer
This strategy is straddle, also known as double profit. It involves buying two options with different directions at the same time.
Brokers advise the following: "If you have bought a PUT or CALL option and notice that the market is moving in a different direction, now is a good time to buy the reverse option, so as not to lose.” Therefore, if I bought a PUT option and it’s still expiring, I should buy a CALL option. In this case, I would have two options.
What, in fact, does this strategy offer? For example, I bought a CALL option of oil with an expiry time of two hours. Within minutes, I see that my prediction is wrong and the oil’s price is going down. The advice from my broker is to buy the reverse PUT option.
But where is the guarantee that when I buy the PUT option, I won’t see the oil price stopped falling and start to grow again? My forecast could actually be true and I could get money, but if I follow the broker’s advice and buy the reverse option, I've taken away my profit because of my uncertainty and fear.
What is wrong with this strategy
Now consider the situation even further. For example, the oil price is still falling, so my first forecast was actually wrong, and my broker was right when he advised me to buy the reverse option, in my case the PUT option.
However, I will buy the PUT option at the new current price level, not at the level at which I bought the first CALL option. So my chances of a correct prediction are exactly the same as with my first CALL option: 50/50.
If the price continues to fall, I‘ll gain a profit, but what if the oil price begins to grow? When my first CALL option expires, the oil price won’t have attained the necessary level, so I will take a loss on my first CALL option.
Maybe my second PUT option will be lucky, but remember that I bought the PUT option (as a reversal option) and the price started to grow but didn’t get the necessary level, which caused my loss for that CALL option.
So if now the price starts to fall (that is good for me), it won’t get to the necessary level when my PUT option expires, so I will take a loss for my PUT option.
In the end, I didn’t trust myself and followed the advice of my broker, resulting in two losses. Moreover, I invested $50 per option, so I lost $100.
Here, you have the straddle/double profit. So, carefully grasp the meaning of what your brokers offers and choose only those strategies that you trust, and then you are guaranteed success at trading. The main condition of binary options trading is to do what you understand; don’t trade when you don’t know what’s happening.