How to succeed with options trading signals
Table of Contents
The popularity of options trading
Due to the increasing popularity of options trading and the prospects it offers to traders, there has been a spike in the number of people seeking genuine option trading signals.
Option trading signals are essential to successful trading, and it’s almost impossible to become profitable if you are trading options signals that are not genuine and consistent in winning trades.
Before we dive deeper into option trading signals and how to make the most of them, let’s take a second to understand the basics of trading options.
What is binary options trading?
Trading options are quite different from trading stocks, Exchange Traded Fund (ETF), or trading any other financial market. However, in options trading, you are at liberty to buy or sell instruments at your volition or hold on to your position over a stipulated time.
Options are traded in the options market and are famous for their contracts’ nature — whose outcome is either a yes or no proposition.
Debunking myths around binary options trading
Contrary to the widespread myth that all binary options are illegal, some binary options platform are duly licensed and listed on the exchanges. Others are under the oversight of the security and exchange commission (SEC).
That means that traders who invest in binary options will enjoy the same security as their counterparts who invest in the stocks or commodity markets.
Regarding risks, another popular myth is that binary options are highly risky. Well, nothing can be farther from the truth. In reality, binary options carry the same risk level as the underlying asset they are tied to —say stocks.
Thankfully there are options renowned agencies that offer legitimate binary options trading signals to investors who need expert knowledge and pointers to be profitable.
Instead of staring at binary options trading graphs now and then, you can leverage binary options trading signals to make your “calls” or “puts.”
Know your options and terminologies
Buying options that allow you to buy an underlying asset is called a “call option” while buying options contracts that enable you to sell the asset is called a “put option” — “call option” to buy and “put option” to sell.
Options don’t buy you a share/ownership in a company like stocks
Contrary to popular misconceptions about options, they are different from stocks because trading options doesn’t buy you a share/ownership in a company.
Also, even though options and futures are similar in terms of contracts positions available to the trader, options are considered low risk because you can back out of the contract whenever you want.
Options are less risky than stocks
Because options are derivative securities and their price derived from the value of other assets like securities and underlying instruments, they are considered less risky than stocks.
Not to beat around the bush, options are betting on the stocks to either go up and down at the primary level. You also have a choice of protecting your position in the market through hedging.
Getting started with trading options
Before you dive into trading options, it is always best to familiarize yourself with the steps involved and possible strategies you can adopt.
How would you like to know the steps involved in getting started in trading options?
1. You need an options trading account
As we mentioned earlier, options are traded on the options market. To get started on trading options, you need to open an options trading account. It would then help brush up on technical terms such as puts, calls, and course strike prices, among other options trading terminologies.
Because trading options requires a relatively large capital, the process of opening an options trading account is meticulous when compared to opening other brokerage accounts.
Opening an options trading account is a meticulous process
While opening your options account, it is not unusual for the broker to demand a meeting with you (the potential investor) before granting permission to trade options.
Most times, the broker would assess your trading experience and ensure that you know the potential risks in trading options and are financially prepared to take on the journey.
What will option brokers ask for?
You will be asked to provide your personal financing information, your trading experience, your investment objectives and the type of options you want to trade. Now, the screening should go both ways. You should also research the broker and ensure that they have the right trading tools and support system for investors.
2. Make your choice of the option you want to trade
Having opened your options trading account, the next step is to decide what options you want to buy or sell. Remember, having a call option contract doesn’t compel you to buy any instrument or asset at the strike price. Instead, it only gives you the right to do so within the stipulated time frame.
Likewise, a “put option” gives you the right to (and not obligation) to sell instruments before the contract duration expires. Your decision to either “put” or “call” an option is dependent on your assessment of where the market is headed.
If you predict that the underlying asset’s price will go up, you should buy a call option (which implies that you are selling a put option). On the other hand, if you forecast that price will go south, you will buy a put option or sell a call option.
What happens if the price is expected to be stable?
You sell both call and put option.
Now, there are lots of strategies you can learn from and build one that works for you. To learn more about options trading, you should invest in education like options trading course and mentorship programs.
Such programs will give you insights on how to read and plot binary options trading graphs and even offer binary options trading signals.
3. Forecast the strike price
As you may already know, options trading will only be profitable if the price closes in your favor before the contract expires — either above or below the strike price. So, if you buy a call action, what you want to see is the asset’s price closing above the strike price. For a put option, the price should be closing below the strike price.
Would you like an illustration?
Assuming you forecast that an instrument’s price will rise above its current price within the contract timeframe, say from $100 to $120, you should buy a call option at a strike price that is less than 120 dollars.
That way, your options will remain in profit as long as the price is above $100. The farther price goes beyond your strike price, the more profits you make.
Hopefully, this illustration helps. While you are at it, you should have it in mind that you don’t just pick any strike price. Options chain or matrix are quoted in standardized strike prices that determine the increment of your trades.
The premium (the price you pay for options) is classified into two components — intrinsic and time value. The intrinsic value is obtained by subtracting the share price from the strike price if the stock price is higher than the strike price.
The time value considers the interest rates, market volatility, and time of expiration of the option.
Suppose you buy a call option at $100, and the instrument (say a stock) costs $110, and the premium is $15. The intrinsic value will be $110 ( share price) minus strike price ($100), equal to $10. The remainder, $5, is your time value.
4. Keep tabs on the option time frame
As we mentioned earlier, options contracts come with an expiry date, after which you can no longer exercise your right call or put. What that means is that you are limited by the expiration offered on the options matrix.
Based on the time available to exercise your right on an option, options can be classified into American and European.
Understanding the difference between American and European options
The former allows you to exercise your right at any time up to the expiry of the option, while European options can only be exercised only on the day of expiration. Because American options offer more flexibility, they cost more than their European counterpart.
The expiry date range from a couple of days to months and even years. However, daily and weekly expiry dates are best left to expert options traders.
If you are looking to invest long-term in binary options, your first point of call is to enroll in a binary options trading course. Then, stick to monthly and yearly expiry dates. It gives ample time for your analysis to play out.
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