About Simple Collar Strategy for binary options: what’s new?
Hedging strategy “Collar” is great for one-touch binary options. These options generate about 150-380% of the profits. Collar strategy also has another name. Often it is called a strategy, averaging losses and gains. This strategy was very popular during the stagnation of the market and perfectly manifested itself in this period. Also, Collar strategy worked remarkably at the time when the option could not achieve the price specified by a particular financial instrument.
Hedging strategy Collar is great for a significant risk reduction with simultaneous purchase of call and put options. The main objective of this strategy will lie in the fact that during trading binary options one could cover the premium on the option by selling another type of option, as well as by closing the transaction on zeros. To close the transaction on zeros means completely cover the losses, possible when choosing the wrong option. In other words, you can avoid losses, but will not get a profit either. Similar results of the transaction are also known as free Collar.
Collar becomes profitable when the income from correctly predicted option covers the loss on losing option, together with the size of the premium. For example, you have purchased binary option Put at 380%, as well as binary option Call on 220%. If the first option wins, your income is 380%, but as your second option lost, you lose 220%. Net income received from this transaction will be 160%. This result is not bad. If you turn this situation to the contrary and imagine, that Call option has won, you bear a loss of 160%, which, despite the lack of profit is still far better than the 380% loss in case of purchasing only one incorrectly guessed option.
In addition to all of the above, you will be able to choose your own interest yield. It is also possible to operate the size of the binary option, which will be engaged in the transaction. To put it another way, during trading you need to consider the size of bonuses including them into a sum that will be a bet on the selected option.
The advantages of this strategy lie in the fact that, after careful analysis, you can establish the probability of price movement in one direction or another. This can help you buy or sell options at a higher price. If your forecast is still not met, for example, when a certain incident, provoking sharp price reversal, you will not lose all the percentage, but only the difference. This strategy significantly reduces risks while trading binary options and is great for traders, recently trading in options and fearing big losses.
- Since you have a Long in stocks, your sold Call is “covered.” Therefore, no additional costs of providing such a position are required.
- For this strategy the net effect of temporary decay is almost neutral. The decay will reduce the price of sold option.
- From the moment when a Collar is formed, the potential profit is limited to strike
- For this strategy the net effect of temporary decay is almost neutral. The decay will reduce the price of purchased option.
That’s all for now. Got any questions? Just ask the expert!