When trading binary options, you have to select one of two options: Call or Put. With this, each prediction ends in the money or out of the money. But what if there was a way to cover both directions in a strategic way that virtually guaranteed you would win at least one trade? Not only that but what if you positioned each trade in such a way that both trades end in the money? Double the profit on a single combination trade sounds crazy, but it’s more than feasible with the Straddle binary options trading strategy.
How Does This Strategy Work?
The Straddle strategy involves purchasing a Call and Put option on a single asset. The difference between hedging and the Straddle lies in the fact that hedging requires buying and selling at the same or similar times, while straddling options are not purchased at the same time or even close together.
Instead, Straddle trades are made at the respective tops and bottoms of price areas being monitored. The idea is to open a trading position in one direction, give price enough time to move in the anticipated direction, and once price follows through, place another trade in the opposite direction.
Problems arise when one trade is lost and another is won. If both trades have the same payouts and wagers, then money is still lost. For instance, placing two Straddle trades on USD/JPY with a payout of 80% at $100 wagers, the total invested amount would be $200, while the total profit would only be $180 leaving you with a $20 loss. The only way around this is to wager more money on the trade you’re most confident in.
Let’s quickly go over a good example of a Straddle binary trade using the RSI.
Assume EUR/USD is in a strong uptrend on the 5-minute chart. But eventually price action looks like it loses steam, this sentiment is confirmed by the Relative Strength Index (RSI) saying price is overbought. With a trend reversal probable, you place a Put using a 20-minute expiry. As expected, price begins to drop. But unexpectedly, price falls faster than anticipated. Price falls 12 pips in less than ten minutes.
With over ten minutes left on the first trade, you decide to place another trade, a Call option, once the RSI drops below the 30 level. You decide to go with a 10-minute expiry to align with the first trade. As a result of your strategic decision making, both trades end in the money.