How to Make Quick Profits Trading Binary Options at Expiration

From www.optionsXplained.com

Binary Options Trading

Notice of Rights© 2010 by optionsXplained. All Rights reserved. No part of this manual may be reproduced, stored in a retrieval system or transmitted in any form or by any means, without the prior written permission of the publisher, except in the case of brief quotations embodied in articles or reviews.

Legal DisclaimersoptionsXplained is neither a Registered Investment Adviser, nor a Registered Broker/Dealer. This guide is intended for informational and educational purposes only. It is not intended to solicit any trading in options, binary options or other securities.This guide was written in reliance upon the "publisher's exclusion" from the definition of "investment adviser", as provided under Section 202(a)(11) of the Investment Advisers Act of 1940, and is designed solely to provide readers with a trading methodology and other related information. Your use of this educational material indicates your acceptance of these disclaimers. In addition, you agree to hold harmless the publisher, promoter, and author personally and collectively for any losses of capital, that may result from the use of this material.We strongly recommend that you consult with a licensed financial professional before using any information provided in this manual. Any market data or commentary used is for illustrative, educational, and creative expression purposes only. Although it may provide information relating to investment ideas and the buying or selling of securities, options or futures, you should not construe anything in this book as legal, tax, investment, financial or any other type of advice.

Binary Options Trading

Make Quick Profits Trading Binary Options at Expiration

A Simple Strategy for Trading Binary Options

We’re going to show you a strategy for trading binary options that has worked well for us in the past, and we expect this method to continue generating quick profits for us in the future. This strategy will trade binary options on individual stocks, but we are going to use data from traditional, American style options to set up our trades. The downside to this particular strategy is that we can only use it in the last hour of trading on one day each month. We’ll trade the last hour of trading before options expiration, which occurs on the third Friday of each month. We’ll utilize the concept of, “pinning the strike” (sometimes called “stock pinning” or “options pain”) to make profits as high as 80% in just one hour. As always, no option trading method is foolproof and any strategy that can gain you 80% in an hour can, and will, burn you. Make sure to your own due diligence before using this strategy.

What is Pinning the Strike?

The phenomenon of pinning is that when a stock has heavy options trading activity, the price of the stock will gravitate towards the strike price that has the most open interest at expiration. Having high levels of open interest (or existing options contracts) is one of the key factors to it. The conspiracy theorists will say

Binary Options Trading

that this works because the market makers are manipulating the market to take as much money from as many investors as possible. However, the reality is that pinning the strike is a result of dynamic hedging by institutional traders, including market makers, floor traders, hedge funds, and others seeking delta-neutral trades.

Why Use Binary Options?

There are two reasons why binary options are the best choice to take advantage of the phenomenon of pinning the strike. First of all, binary options are only offered on stocks that have heavy option trading activity, and therefore heavy open interest. Secondly, binary options will provide a profit of as much as 80%, even if the option is only in the money by one cent at expiration. In other words you don’t need it to move towards the maximum options pain strike by very much for this to be a profitable strategy.

How Can I Make Money With This?

A real world example of this occurred on the June 18, 2010 expiration of Google options. Google had the most open interest (i.e. maximum option pain) in the $500 strike price contracts. On that day, GOOG traded as low as $498.13 and as high as $503.47. It oscillated around the $500 mark most of the day. With one hour to go in the trading day, it was trading at $499.23. We bought GOOG binary call options with a one-hour expiration in expectation of the stock gravitating towards the $500 maximum option pain mark. Ultimately, it closed the day at $500.03, just $.03 away from a perfect pin. This trade netted us an 80% profit in just one hour, even though the stock only moved up $.80 or 0.16%.

Binary Options Trading

You Can Make Money With This Strategy

It’s actually quite simple. In order to take advantage of this strategy, you’ll need a maximum option pain calculator, which you can get for free by clicking here: Option Pain Calculator

You’ll also need a binary options trading account. While there are dozens of binary options trading platforms available on the market today, we recommend TraderXP as the best choice. You can open a free account by clicking here: TraderXP

The Steps

The first step in the process is to look for the most active binary options plays. We use Google (GOOG) Microsoft (MSFT) Yahoo (YHOO) Cisco (CSCO) Apple (AAPL) and Citibank (C) as our choices. On the morning of options expiration, which is always the 3rd Friday of the month, run those 6 stocks through the free option pain calculator and compare the maximum pain price to the current stock price in the market.

Once you’ve done that, decide which of the 6 you believe is most likely to gravitate towards the pain price. We like to use streaming charts to follow the trading as the afternoon approaches. Just before 3:00pm Eastern time, place call or put buys based upon whether the stock will go up or down towards the pain price (calls if you expect it to go up, and puts if you expect it to go down). That’s all there is to it. Making money with options trading just doesn’t get any easier than that.

Binary Options Trading

In the beginning it’s best if you focus on one stock that you feel is most likely to gravitate towards the pain price, and trade it. However, we often trade several of the stocks, and on occasions, even all 6.

For more information about binary options, including specific trading ideas, strategies, and trade alerts, visit: http://www.optionsXplained.com

OptionsXplained recommends TraderXP as it's binary options trading platform of choice. The offer the widest selection of securities to trade, best tools, and executions.

For our readers only...we worked a special deal with TraderXP and we got you a $250 free bonus on opening your account. All you need to is deposit $1000 into your options account.

To get started trading binary options today, visit:

TraderXP

Binary Options Trading