THE HOT WINDOW
Binary Options Stock Strategy
In this lesson, we will try to provide you with details on how current events can affect the price of stocks. Understanding the stock market, and how it reacts to different events, i.e. a new iPhone release, can significantly increase your chances for success.
The advantages of trading Binary Options for stocks is that you have access to hundreds of stock options traded through numerous exchanges around the world. Depending on the brokerage you're trading through, options for stocks will vary. A good spread will include stock options from the NYSE, the NASDAQ, and also include options from European, Asian, and Middle Eastern exchanges.
Many factors can change the direction the price of the stock will go in. To trade binary options for stocks successfully, you will need some understanding of the way stocks behave after events take place that create these directional changes. To name a few examples, some of these could be news releases, earnings reports, and new product releases.
The funny thing is, in the world of trading stocks, different factors affect the direction of the stock price, and often times, have nothing to do with actual supply and demand. In the case of trading binary options, our reward is based on our ability to predict if the price of the stock will either go up or down, and not whether the value of the stock we bought has either increased or decreased for the day. In other words, understanding market factors is very important to binary options traders.
So here are a few factors that can have an effect stock behavior.
When investors are worried about economic downturn because of news or events that took place, they are less likely in the market of buying stocks, and prefer to hold onto to cash. Others sell their stock holding resulting in the stock prices falling.
If a company has a positive report with increases in sales and profit, the stock price will go up, and if a company has a negative report showing a loss, the stock price will go down; but there is a lot more to it than that. Let's say a company produced a positive report, but the sales the company reported, were considerably less than the expectation numbers analysts perceived the company would have, you would likely see the price of a stock drop.
If a company reports a loss, but the report shows the loss is less than the loss the company reported previously, than it might signal to investors that the company is experiencing growth, resulting in the price of the stock to go up. A trader wants to look through historical data to make accurate predictions when trading binary options stocks. Keep in mind, earning reports are quarterly, and are more effective for predicting trends.
Mergers and Acquisitions
Mergers take two companies that might be in direct competition with each other, and combines them together. This means the acquiring company has less competition, and maybe larger market share of a product or service. For investors, this is a positive sign to invest in the company's shares, and will most likely result in the stock price increasing.
Stock prices could go up or down based on government policies. If government issues a policy that makes importing more difficult by increasing the size of duties, companies can be forced to offer products at a higher cost, resulting in lowered earnings. In some cases, new regulations by government can have a major effect on an entire industry, resulting in prices of stocks for companies associated to that industry to increasing or decreasing.
Making the trade
First, identify the direction the price of a stock will go in. Use indicators from news releases as your guide in making your decision. Next, choose any binary option type that you feel fits the trade. For example, an earnings report can lead to a response where the price stays the same or close to the same over the course of many days. The trader can then trade a Touch/No Touch option with a limit on how high the price will go. If the price does not increase past the limit set by the trader within the expiry time of the option, the trader wins. A trader should also consider using chart analysis for support and resistance levels to assist in choosing the price limit.
If a major news release is likely to cause a price of an asset to spike in any direction, a trader should consider an option with a high yield. For example, if Apple announces that it's going to release a new blockbuster product, history tells us that the price of the stock increasing normally follows. It's always up to you, the trader, to decide what kind of option you want to trade. Keep the options consistence with the position the stocks are in, and you will increase your chances for success.