Collect a Day Trading Premium on Your Failed Limit Option Trade
Use a Binary Option to Collect a Premium on Your Unfilled Option Order
Are You Sick of Having Your Stock or Option Orders Close Unfilled? Why Not Use a Binary Option to Collect a Day Trading Premium on Failed Limit Orders?
It was then it came to me: use a small binary option trade to collect a fee or premium on my unfilled option trade. “Brilliant!” I thought. Place a limit order on a call option (for example) on one of the large companies that is also traded at a binary options broker. Watch the market with your binary option trading screen open until the spot price on the underlying security hits your bid price – then WHAM! quickly place an end of day expiry binary call option for $100 (or other nominal amount – minimum trade at my broker is $30) on the security.
Keep Watching the Market – And Be Prepared to Make Additional Binary Option Trade Moves
Now that you have your base positioned established at worst case one of these four scenarios will happen during the day if you stand pat:
- The price of the stock will remain right where it is
- Likely resulting in unfilled limit option order (cost $0)
- Binary call option results in a push (cost $0)
- The price of the stock rises
- The binary call option ends in the money (profit: ~$70 on $100 contract)
- The limit option order remains unfilled
- The stock price falls just below the spot price at purchase of the call option but not far enough to move the market ask price on the limit option order
- The limit order remains unfilled (cost $0) and
- The binary option expires out of the money (cost $100)
- The spot price of the stock moves down enough to move the call option ask price below your limit price
- Binary option ends out of the money (cost $100)
- Limit option order gets filled (cost: cost of option time number of contracts ordered)
The only scenario that is a real loser is the third where you don’t get your order filled AND you lose out on the binary contract. Still, having said that the third scenario is pretty darn unlikely in the highly liquid stocks, forex pairs, and indices on which binaries are traded. The spreads on the long in the money standard options typically are reasonably small on these highly liquid securites, and scenarios where prices don’t move enough to shift the ask to the bid price in a given day are pretty darn rare in my experience.
Having a Binary Options Trading Account (open an account)
Gives Frequent Traders a Way to “Punish” the Market for Failed Limit Trades
Based on my experience the most likely outcome of this would be position 4, where the option order gets filled and the binary (at least at some point in the day) is out of the money. The good news is that you can take action during the day to hedge the cost of your binary call option.
Taking Advantage of Market Volatility to Set Up a Hedge Position on a Binary Call Option
If at any time during the trading day the spot price of the underlying stock moves up in price you can create what I like to think of as a “Goldilocks Hedge” on the binary call. Recall that we placed a limit order on a standard call option we want filled at OUR limit price. We then bought a binary call option when the spot price of the stock was at (or slightly below) our limit order price (call premium plus strike price) on the standard option.
Ready for the Kicker???
Trade volatility may be such that you not only get a Goldilocks binary position, but at some point in the day your option order gets filled too! Day trading options this way allows you to not only be active in the market, but also forces you to be disciplined about how you buy your standard option contracts. On any given day you will usually get your order filled and pay out a few bucks on the binaries, but every once in a while you’ll hit a Goldlocks at expiration and you can buy a round for everyone at the bar.
A Technical Indicator Tool (like this one) Is Critical
for Anticipating Market Movements
Basically my advice is: Once you’ve been able to setup your limit order and your two binary orders (Goldlocks Hedge position) – pat yourself on the back, go grab a beer, and watch some Tv. You’ve already had a good day!
Are you really trading these strategies? If so how much per day or per week are you getting?
The only one I haven’t seen make the jump from theory to reality is the the Forex “nudge” – all the other strategies are pretty plain vanilla – very simple. Two assets knocked against each other. One is a winner, one is a loser. The goal is to land close to the middle and make some money. Otherwise you fall a little outside the good window and lose some. Most of the time you lose, but when you win, you win big. You just have to play often enough to make the odds come out for you.
Personally, most of my trading is straight options trading – because that’s where the real money is (with minimal managerial headaches – which is a principal lifestyle priority of mine). Once you have enough capital to open that type of account- that’s where you should be heading – but in the meantime binaries are an EXCELLENT training ground to learn the lingo and make big gains (relatively) with small capital without commissions and spreads to kill your capital base.
The reason I haven’t worked the forex trade by the way is frankly it’s easier to clear a few bucks with the bonus cash than working like crazy trying to make the forex side work – and I’m really into making the maximum gain with an acceptable amount of risk and minimal managerial headaches. That’s why I work with mostly standard / American options, now that I have that kind of capital.
Oh ok. Im sorry if the first question seemed to be a little rude. I have no doubt that you and your strategies are profitable. Its just that I am a little unsure about the brokers offering these kinds of options.
I have checked that almost all the brokers offering these are based in Cyprus…. Well I have heard horror stories with anything related to that island, especially online ventures…
So my real question is, have you been profitable using these brokers and get to withdraw your earnings?
Hope you understand.
By the way, did your investment in standard options mostly come from profiting in binary options? And would you mind sharing your strategies using standard options?
Hi Azam-
I pulled this off another site today which is illustrative of the point I’ve been trying to make about getting money out of EZTrader.
Let me set the context of this message – A person was going on various sites saying to the effect of “EZTrader is a ripoff and owes me money…” etc.
When in reality EZTrader had returned the trader’s funds/deposit – but not profits due to the trading restrictions on the bonus cash – which are clearly stated in the terms of service.
Here was EZtrader’s response on that “Scam” board:
Now-
How might a trader avoid the unpleasantness of being in Kurt N’s situation? The answer is the hedge and double strategy we outlined here in the Sept post.
Why does this work?
Because using the hedge and double “churns up” some low risk trading volume for the bonus cash recipient – while at the same time presenting the trader with a few swings at the fences for a big payday – free and clear of the “bonus cash restrictions” due to the trading volume.
Some math:
EZTrader requires 2 times trading volume of the trader’s deposit plus the bonus cash in order for the funds to be free and clear (pulled right off their FAQ page). How might a trader work the hedge and double binary options trade to generate 2 times the cash+bonus position without losing his shirt in the process?
Assume trader deposited $500 and received $100 bonus cash (a typical offer at Tradesmarter or EZTrader or Binarix.
2 times $600 = $1200 – so we have to build $1200 trading volume in the account.
Answer:
Pick a 75% yield (ITM) binary options security with a 15% yield on OTM (out of the money), and use the hedge and double selectively in $200 blocks to build binary options trading volume in your account.
How does the math work out?
A typical hedge and double position on a 75% yield/15% OTM binary options trade has an expected loss of 5% when one position is in the money, one position is out of the money. Having said that, the hedge and double creates $400 in trading volume per use when committing $200 of capital to each side of the trade.
So the first trade is made, commiting $400, losing 5% – a $20 loss. Net trading volume: $400, account balance $580 ($480 + $100 bonus cash – unused). So make another trade:
$400 trade (2 $200 positions) – 5% loss ($20 cash loss). Ending position: $560 ($460 deposit + $100 bonus cash) trading volume = $800.
You should be able to see where this is going:
Make another hedge and double: $400 trade (same story – 2 opposite $200 positions) – expected 5% loss ($20 cash) – ending balance: $540 ($440 deposit + $100 bonus cash). Trading volume = $1200. Based on the terms of EZTrader’s bonus cash terms, your $100 bonus cash is free and clear – and you’ve taken three swings at the fences and failing a complete catastrophe (possible but hopefully not likely if you’ve done your homework and timed it up decently) you’ve got $40 extra cash in your account just for trying.
Now: with regard to Cyprus, fears about credibility: visit their site. Look at the logos at the bottom of their webpage:
Nasdaq, Reuters, Mcafee, Visa, Mastercard, American Express.
Exactly how much more credibility do they need? Those companies don’t just let any fly-by-nite website use their logos. Contest a charge to your credit card with Visa, etc. and they risk having their entire account frozen. Think they want that in a fight over a lousy $500 or $1000 or even $10000 account? I don’t think so.
Kurt N (above mentioned complainer in block quote) is very fortunate EZTrader hasn’t sought civil damages. They’d bury him.
Wow… that was a little verbose. I do expect to reveal my options trading strategies, but that will be in some form of book. Suffice to say I only actually make 3-10 trades a year, and make all my investment earnings on just those few trades. Otherwise, I’m in cash. I go for home-runs and nothing else – but you have to be patient enough to wait for your pitch and be ready to swing hard when it comes.
Ok thanks.
By the way, EZTrader is now all or nothing. It’s either you hit your payout or you receive nothing now.
They were always spotty on what they offered vis a vis the 15%. On the other hand, AnyOption offers the 15% on ALL of their securities.
The binary hedge still works in either situation, only the math is different. This is why I made up the worksheet so traders could adapt the hedge play to whatever the current market conditions were and have some chance at evaluating feasibility on the fly.