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Binary Options: Strategies for Directional and Volatility Trading

Book Description

The first comprehensive guide to trading a unique class of options to manage risk and make smarter bets during volatile trading

Providing savvy market players with a way to react quickly to event-driven opportunities and trends, exchange traded binary options are a unique type of derivative instrument offering fixed risk and reward. Available on four asset classes—stock index futures, commodity futures, Spot Forex and economic data releases—they are distinctly different from regular put/call options in that their pay-out structure offers only two potential outcomes, or settlement values: 0 or 100. The first guide focussing exclusively on this fast-growing sector of the options market, Trading Binary Options examines the key differences between regular options trading and binary options trading and describes how binary trading is done. It also gives you the lowdown on the most successful binary trading strategies and how and when they should be deployed.

  • Outlines a rigorous approach to trading directionally around specific events, such as an earnings release, a shift in currencies, or a release of economic data

  • Provides the first comprehensive coverage of an increasingly popular but poorly understood trading instrument

  • Offers in-depth discussions of the six characteristics that distinguish binaries from other options and that make them such an attractive vehicle for hedging risk and improving returns

Table of Contents

  1. Cover Page
  2. Series
  3. Title Page
  4. Copyright
  5. Dedication
  6. Foreword
  7. Preface
    1. PART 1: INTRO TO BINARY OPTIONS
    2. PART 2: BINARY OPTIONS THEORY
    3. PART 3: TRADING BINARY OPTIONS
    4. PART 4: BINARY OPTION TRADING STRATEGIES
    5. PART 5: CREATING YOUR BINARY OPTIONS STRATEGY
    6. PART 6: MANAGING YOUR BINARY OPTIONS ACCOUNT
    7. PART 7: PROFITING WITH VOLATILITY
  8. Acknowledgments
  9. Part I: Introduction to Binary Options
    1. Chapter 1: What Are Binary Options?
      1. ON WHAT ASSET CLASSES ARE BINARY OPTIONS AVAILABLE?
      2. BINARY OPTIONS VS. CBOE (VANILLA) PUT/CALL OPTIONS
      3. ADVANTAGES/DISADVANTAGES OF BINARY OPTIONS
      4. REASONS TO TRADE BINARY OPTIONS
  10. Part II: Binary Options Theory
    1. Chapter 2: What Does Binary Mean?
      1. COMPONENTS TO A BINARY OPTION
      2. LONG TRADING
      3. SHORT TRADING
    2. Chapter 3: Pricing
      1. STRIKE PRICE
      2. TIME VALUE
      3. PRICE AS A NATURAL MARKET CONSENSUS
      4. READING A BINARY OPTIONS CHAIN
  11. Part III: Trading Binary Options
    1. Chapter 4: Binary Options Contract Collateral
      1. MARGIN AND DEBIT RISK OF VANILLA OPTIONS AND FUTURES
      2. COLLATERAL EXPLAINED
      3. BINARY OPTIONS EXPIRATION VALUES
      4. COLLATERALIZING A LONG TRADE
      5. COLLATERALIZING A SHORT BINARY OPTIONS TRADE
      6. THE MECHANICS OF A BINARY OPTIONS SHORT TRADE
    2. Chapter 5: Settlement
      1. SETTLEMENT ON BINARY OPTION LONG TRADES
      2. SETTLEMENT ON BINARY OPTIONS SHORT TRADES
      3. COMMISSIONS AND FEES
    3. Chapter 6: Entering and Exiting Binary Option Trades
      1. READING QUOTES
      2. READING AN ORDER TICKET
      3. EXITING TRADES
      4. EXITING YOUR TRADE BEFORE EXPIRATION
    4. Chapter 7: Keys to Trading Binary Options and More Examples
      1. GOLD BINARY EXAMPLES
      2. COPPER BINARY EXAMPLES
  12. Part IV: Binary Options Trading Strategies
    1. Chapter 8: Volatility Trading Explained
      1. TAKING A VOLATILITY LONG POSITION (BUYING VOLATILITY)
      2. REGULATING SUCCESS PROBABILITY AND PAYOUT WITH STRIKE PRICES
      3. TAKING A VOLATILITY SHORT POSITION (SELLING VOLATILITY)
      4. REGULATING RANGE AND PAYOUT WITH STRIKE PRICES
      5. MAX LOSS, COLLATERAL, AND MAX PROFIT SUMMARY TABLE
    2. Chapter 9: Binary Option Behavior as Expiration Approaches
      1. UNDERSTANDING DELTA
      2. DELTA AND PRICE
    3. Chapter 10: Technical Trading Strategies with Binary Options
      1. SUPPORT AND RESISTANCE
      2. BREAKOUT TRADING
    4. Chapter 11: Fundamental Trading Strategies with Binary Options
      1. NEWS RELEASES
      2. POLITICAL EVENTS
      3. SPECULATING ON ACTUAL NEWS RELEASES
      4. ECONOMIC DATA RELEASES THAT YOU CAN SPECULATE ON
  13. Part V: Creating Your Binary Options Strategy
    1. Chapter 12: Systems with Binary Options
      1. FINDING YOUR EDGE
      2. PROPER TRADING SYSTEM DEVELOPMENT
      3. BACK-TESTING BINARY OPTIONS STRATEGIES
      4. THREE BACK-TESTING RULES
    2. Chapter 13: Negative Emotions
      1. GREED AND FEAR
      2. HOW TO HANDLE NEGATIVE EMOTIONS
      3. FIND THE RIGHT SYSTEM FOR YOU
      4. PRACTICAL STEPS TO MITIGATE THE NEGATIVE EMOTIONS
    3. Chapter 14: Risk Management
      1. THE PROCESS
      2. DETERMINING POSITION SIZE
      3. RISK MANAGEMENT ON OPTION SPREADS
      4. RELATIONSHIP BETWEEN POSITION SIZE AND TRADING PSYCHOLOGY
      5. HANDLING UNEXPECTED MARKET VOLATILITY
      6. BENEFITS OF BINARY OPTIONS ON TRADING PSYCHOLOGY
      7. DISCIPLINE OF EXPIRATION
  14. Part VI: Managing Your Binary Options Account
    1. Chapter 15: Proactive System Improvement
      1. SYSTEM CUTOFFS
      2. DRAWDOWN
      3. CONSECUTIVE LOSING TRADES
      4. REINVESTMENT RATE
      5. DIVERSIFICATION AND ACCOUNT DISTRIBUTION
      6. INTERSYSTEM DIVERSIFICATION
      7. ACCOUNT BREAKDOWN
  15. Part VII: Profiting with Volatility
    1. Chapter 16: The Volatility Short Trading Rules
      1. PREMIUM COLLECTION
      2. RULE 1: CUT OFF YOUR LOSING TRADES
      3. RULE 2: COLLECT ENOUGH PREMIUM
      4. RULE 3: SELL FAR ENOUGH AWAY FROM MARKET PRICE
      5. RULE 4: USE UNDERLYING INSTRUMENTS THAT REVERT TO THE MEAN
      6. RULE 5: SELL OPTIONS WITH PROPER DURATION UNTIL EXPIRATION
      7. RULE 6: PERFORM ADDITIONAL ANALYSIS IN ORDER TO GET A FEEL FOR MARKET DIRECTION
      8. RULE 7: ATTEMPT TO MAKE YOUR MARKET
      9. CONCLUSION
  16. Glossary
  17. Index