Learn about Strangle Strategy from ABBOS Experts
Binary Options are gaining immense popularity with each passing day. Of course, option trading leads to the formation of new strategies that traders provide for profitable trading and successfully use in practice. Today we talk about strangle strategy.
The basis of the strategy is the purchase of two contracts that will move in different directions, namely CALL and PUT on the underlying asset, with the same timeframe at the same time.
Thus, this technique is quite effective and can be very profitable, but it is necessary for a trader to comply with the conditions. To use this technique 100% it is necessary to analyze the market and it’s better to use it when the market is expected to significantly pulse.
Remember that no matter which way a strong movement goes, the main thing here is to catch it at the right time – and it is just before its beginning.
As it has been previously stated, the essence of STRANGLE strategy is to purchase two opposite contracts, namely CALL AND PUT, with the same period of existence and the same amount of investment in both contracts.
Now many brokers in the binary option market allow purchasing both options at the same time – that is, one order.
At first glance this technique may seem imperfect, because in any case the trader loses money since the income is 70% -90%, and the loss – 100%. It is true, but there are different types of binary options (American and European), and thanks to this we can close contracts anticipatorily.
For example, imagine that a trader has found out news about the data on consumer price index in the European Union, expecting that the market will have a big boost, and decides to make money using the strategy of strangle.
Thus, the trader purchases CALL and PUT options with the asset EUR/USD, the strike price is 1.2100, and the timeframe – 30 minutes for 3-5 minutes before the final data publication. As a result, when the statistics released, it turned out that the price falls, the price index was worse than expected and it’s logical to assume that the price of the asset EUR / USD will decline.
On this basis, the trader is obliged to close the CALL option and receive compensation for it. The result is that the trader has less profit than he could, leaving only one contract open, but his income is more stable.
- You make a profit no matter which way the price of an asset will go
- You limit your risk
- Margin requirements are equal to maximum risk
- The maximum profit is absolutely unlimited
- The strategy has official permission in the market.
- You’ll get a profit using this strategy only if the underlying asset price changes much
In order to eliminate this negative factor, experts recommend choosing options on those financial instruments that have the highest liquidity, i.e. volatility or expected increased volatility, for example, before the release of important news.
To do this, perform a little analysis and see how certain news influenced the chosen financial instrument in the past. Note the minimum and maximum prices for the past six months. This will help you determine not only the period of increased volatility, but also the direction of prices.
That’s all for now. Got any questions? Just ask the expert!