Purchasing puts and calls – A binary option trading strategy
There are many binary options used to analyze the stock market and then act accordingly. The binary option trading strategy then adopted becomes important based on the market. All the stock trading depends on two basic terms – a bearish market or the bullish market.
You could purchase a put or a call depending on whether you are bullish or bearish on the underling stock. Buying call as well as put options is generally done from the vendor known as option writer who’s indebted to abide by your decision from which a fee is paid called premium, which you disburse to buy an option.
On the trader using these binary options exercising his option, the option writer stands a loss that’s cost differential among the spot cost as well as the strike cost, with a reduction of the premium revenue he has made. If you let the option expire or lapse then the options writer earns by way of premium which you’ve remunerated to purchase the option. In this case the option the writer’s return is limited but the risk unlimited. The binary options of Put and Call are vital to understand binary options trading strategy – i.e. which option to use when.
A call option is bought if you anticipate the value of the stock market to rise, and on the other hand you need to buy a put option if you anticipate the value of the stock to fall. When you expect that there would be no upward shift at all – you require selling a call option. You would sell a put option when you do not expect any downward movement. At the time that you purchase a put option you’re holding the authority of selling a specific amount of the original stock at the strike cost on or ahead of the termination date. If you are bearish on the stock, then you could purchase a put option at a pre determined rate that is higher than the fall you expect in the price of the stock.
At the time that you purchase a call option you’re holding the authority of buying a specific amount of the original stock at the strike cost on or ahead of the termination date. If you’re bullish on the stock, then you are able to buy a call option for a fixed rate that is lower than the appreciation that you expect in the price of the stock. This is the binary option trading strategy that is commonly used – keeping a close watch on the company.