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Binary options with an onion structure are nested double no-touch binary options. Onion binary options are designed for people who want to speculate on volatility; they have no directional features.
Their peculiarity is: for each Double No-Touch mentioned, onions have two strikes/barriers, three below and three above the current underlying price.
Many trading methods quickly switch to a lower payout and new strikes if the trading instrument trades at or through a strike or barrier at any time until expiration.
However, as with many binary options trading strategies, the trader can benefit from a lower payout if the underlying asset moves just a little away from the current price.
Since onions have negative options, unlike traditional straddles and strangles, if the trader expects a drop in volatility, he will buy the Onion rather than sell it.
Other properties of Onion binary options
Onion profiles rarely exceed a fair value of 3.20 with an implied volatility of 25%, showing once again that the Onion can offer an exceptionally high yield for trading the equivalent of a straddle in the traditional market. It would take a substantial initial binary spread to earn this kind of return by shorting traditional straddles or strangles.
Find more articles in my Binary Options Glossary.
