Binary Options Strategy for Commodities
Many traders deemed that this binary options strategy is very effective and capable of generating consistent and worthwhile profit streams. However, as a definite level of skill is unquestionable required to operate CSAT strategies proficiently; they are not classified as being suitable for beginners.
So, what are these strategies all about? Basically, their primary concept is to activate binary options based on commodities and hedge them with ones structured on assets that are directly affected by them. For example, imagine that news has just been released disclosing that there has been a significant surge in the price of oil. Such an event could also impact currency pairs that are closely correlated with oil, such as the Canadian Dollar.
Consequently, if you deduce that the price of oil is now set to rise in the imminent future then you could open a CALL binary option structured on this commodity. In addition, if your analysis also confirms that the Canadian Dollar will track oil higher, then you could double your bet by simultaneously instigating a PUT binary option by deploying the USD/CAD as its underlying asset. When doing so, you must utilize identical parameters as you did for your initial trade, i.e. same deposit size and expiry time.
By performing this action, you would mitigate your risks by diversifying your investment portfolio as they would now be spread between two trades instead of one. In addition, if your analysis proves correct, then you would gain the opportunity to acquire two payments at expiration if both of you positions finish ‘in-the-money’.
However, you must appreciate that the risks involved with this strategy are high. This is because you really need sufficient knowledge about the trading performance of oil and the USD/CAD in order to ensure success in this case. This fact is also true about commodities and their influenced assets in general. If you do not possess a sound understanding of these concepts, then you will be merely gambling and exposing your positions to high levels of risk. In the example just presented, you could easily suffer a double loss under such circumstances.
Let us now investigate the pros and cons in more detail about initiating a CSAT strategy by considering a specific example. Envisage that news has just been published announcing that the price of aviation oil looks set to appreciate in value because of threats to its production and supplies.
As such, after your resident team of experts performs a suitable analysis of this development, you decide to execute a CALL binary option using this commodity as its prime asset. You support this trade with an expiry time of 1 day. You select a longer period because you want to provide the fundamental issues, generated by the news release, with sufficient time to drive price into your favored direction before expiration.
You then choose to wager $1,000 which is less than 2% of your total equity. You opt to restrict the value of your deposit because of the risks involved with this type of strategy. This percentage will ensure that 82% of your account balance will still be intact even if you were to suffer ten consecutive losses.
The ‘in-the-money’ payout for your trade is 80% while the refund ratio is 10%. This means that when you activate your binary option, you will stand to lose more than you will gain at that point in time. This is because your potential loss is $900 while your maximum win is just $800.
If you have sufficient expertise and resources available, you could now instigate a Commodity Stock Affect Trade Strategy with the intent of bringing the odds back into your favor. You could achieve this goal by searching the asset list provided by your binary options brokers for securities that will be directly impacted by a surge in aviation fuel. Your studies reveal that such a candidate is Boeing as its operating costs are highly correlated to the price of aviation oil.
Consequently, as your experts predict that the shares of Boeing are likely to decline in the imminent future, you opt to execute a PUT binary option structured on Boeing. You back this trade by again wagering $1,000 and using an expiry time of 1 day.
The success of these positions now depends heavily on the quality of your analysis concerning the inter-relationship between oil and Boeing. If your studies are well-founded, then your risk exposure will be minimized. In addition, you would have successfully generated the opportunity of capturing a double profit if both trades finish ‘in-the-money’.
As you can now conclude, you should definitely refrain from instigating such strategies if your experience is low and you possess limited knowledge about stocks and commodities. This is because the risks are just too great. As you will merely be gambling, you could expose your account balance to a double whammy at expiration. Remember that achieving success at binary options is all about minimizing your risks whenever opportunities arise. If you are a novice at binary options trading, then utilizing CSAT strategies certainly does not comply with this stipulation.
However, you should not totally dismiss this strategy completely out-of-hand as many professional traders have achieved great results from implementing it. You just need access to the correct levels of knowledge and experience to enable you to do the same. In the interim, there are many other binary options strategies that are more suitable for the less experienced.