Although this strategy is undoubtedly linked with high payout ratios, often exceeding well over 300%, it is also associated with increased levels of risk. However, the long shot strategy only needs to produce a few successful results in order for you to not only protect your account balance but also to earn impressive payouts. If you are mentally prepared to accept the greater odds at implementing a ‘long shot’ strategy then you can acquire impressive opportunities to earn significantly higher profits than those supported by other binary options types.
You can execute this strategy using any of the assets supported by your binary options broker. Your objective is to initiate trades possessing pre-determined target prices that are located some distance away from their opening values. In fact, the payout ratios of long-shot strategies are directly proportional to the gap length between the opening and target prices.
This is because the risks increase dramatically the further away the target price is from the opening one. As the price will have a significantly reduced chance of hitting its target at least once before expiration; the odds, that a trade will finish ‘out-of-the-money, rises exponentially. However, on a positive note, you only need to generate a limited number of wins to record a substantial profit.
When to trade the long shot
The long-shot strategy is most effective whenever you detect that the prevailing market conditions are volatile exhibiting large price surges or spikes. As such, you should consider executing this tool after the release of major fundamental news releases that fail to match analysts’ expectations. As the markets would not have properly priced in such eventualities, you will find that surprised investors will initiate rapid trading decisions in order to modify their investment portfolios in accordance with the new underlying trading conditions. Consequently, the markets will experience surges in volatility which are the ideal breeding grounds for long-shot strategies.
You can instigate such a technique by first identifying a target level that price must hit at least once before expiration. The further this distance is from the opening value of your new binary option will dictate the size of your payout ratio. Specifically, returns increase directly in proportional with the length of this distance. Many exponents of the ‘long shot’ strategy utilize technical analysis to help them determine their optimum target prices and expiry times.
Example of the long shot strategy
As the risk exposure of these strategies can be much greater than that of other binary options types, their payouts can be very high, i.e. 500%. An example is now presented illustrating the long shot strategy in action.
1. Envisage that the Bank of England has just informed the markets that it has just cut its benchmark interest rates in order to boost the struggling British economy. After analyzing the underlying motives behind this important decision, you deduce that the GBP/USD will plummet amid enhanced levels of volatility.
2. As such, you opt to instigate a long-shot strategy.
3. You must next scroll down the list of presented assets until you locate the GBPUSD. You record the target price; the return ratio and the quoted expiry time.
4. As you have deduced that the GBPUSD will drop, you initiate a PUT binary option that will enable you to implement such a strategy. Most brokers allow you to initiate ‘long-shots by using their ‘touch’ binary options.
5. The target and opening prices of your new position will be displayed.
6. The payouts for both ‘in-the-money’ and ‘out-of-the-money results’ will also be shown on your trading platform.
7. Choose the size of your investment and activate your new PUT binary option. You are well-advised to utilize a proven money strategy to assist you in identifying the safest amount to wager that will not expose your account level to an excessive level of risk.
If you do not possess such a facility, then you should limit your investment to a maximum of 2% of your equity.
8. The prominent details of your position will then be presented, such as payout ratios, option type, transaction id and invested amount, etc.
9. In particular, the current value of the GBP/USD and its targeted price will also be displayed.
10. You can now often track your binary option by using a graph or a similar tool provided by your trading platform. Usually, when the color of a graph, if provided, is green then this indicates that you are currently ‘in-the-money’.
If red, then your option is presently losing. A red horizontal line is normally utilized to identify the exact time that your option will expire.
11. At expiration, your long shot strategy terminates.
12. Envisage that as the price of the GBPUSD did decline and the target level was touched at least once before expiration, your trade did finish ‘in-the-money’ and you collected a return as advised by your broker. As the risks associated with this strategy are very high, the payout ratio can often exceed 300%.
13. Alternatively, if the GBPUSD failed to strike the target level at least once before the expiry time elapsed, then you would have closed out-of-the-money; lost your deposit but could have collected a refund in compensation.