Double No Touch Options consist of two strikes/barriers, one below the current strike price and the other above the current strike price. If neither of the two strikes/barriers is reached or breached at expiration, the strategy settles at 100.
Double no-touch binary options are often traded using the right binary options support and resistance strategies or binary options trading indicators.
Double No Touch Binary Options in a nutshell
- Double No Touch Options have two barriers, one below and one above the strike price.
- Traded with support and resistance strategies, or indicators, for effective binary options trading.
- Time Decay buyers benefit from understanding the profile of in-the-money positions in double no-touch options.
What is the volatility of Double No-Touch Options?
The volatility of Double No-Touch Binary Options is highly efficient for volatility estimation compared to traditional instruments like straddles and strangles. If the trader wants to sell volatility, which in the traditional sense would require selling straddles or strangles at the money, he should look into Double No Touch Binary Options.
This is a sudden-death approach to trading, but at the same time, a lucrative path to shorting volatility, provided the strikes are not touched.
What is the time decay of Double No Touch Binary Options?
The time decay of Double No-Touch Binary Options is crucial for buyers focused on time decay. This is because the most profitable no-touch trades are in-the-money positions to varying degrees.
For an analysis of Time Decay and the most profitable price levels of the underlying assets for buying Double No Touch binary options, see the Double No Touch Theta section.
How does implied volatility affect Double No Touch Binary Options?
The price profiles of Double No Touch binary options are strongly influenced by the implied volatility, i.e., the Double No Touch Vega is high. It follows that the higher the volatility of the underlying, the higher the chance of hitting one of the strikes and the lower the price of Double No Touch.
When volatility is high, the profits from selling volatility, i.e. buying Double No Touch binary options, are most tremendous when the price is midway between the strike prices. When implied volatility falls, the most significant gains move away from the midpoint of the strikes and toward the strikes.
Example: How does a Double No-Touch Binary Option work?
A Double No-Touch Binary Option works by setting two price barriers that the asset’s price must not reach before expiration to yield a profit. For example, let’s assume Gold is currently trading at $2000. A binary options brokerage is offering an 86% payout for a double no-touch binary option that expires in 15 minutes, with an upper price barrier of $2020 and a lower price barrier of $1980.
Observing Gold’s price movement over the past hour, the trader anticipates low volatility and believes Gold will not reach either the $2020 or $1980 barriers in the next 15 minutes. Investing $200 in this double no-touch binary option, if Gold does not touch either barrier during the specified time, the trader will earn a profit of $172 (86% of the initial investment). Conversely, if Gold hits either barrier, the trader will lose the entire $200 investment.
