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Some of the complicated formulas come into play when pricing options. The price of an option will change constantly as the price of the underlying stock changes, and there is also something called "time premium" built into the value of an option. What this basically means is the longer an option has until expiration, the more extra price is added into its price. When you think about it this makes sense, Updown Signals as an option with an expiration date far into the future has more time available for the price of the underlying stock to move above the option's strike price. In other words, an option expiring in 5 minutes only has 5 minutes remaining for price to move above its strike price (if it hasn't already), but an option expiring in 5 days has a much greater chance of that happening.
One way to look a binary options is to think of it as trading made simple. While many might take one look at the first word of binary options and seize up with fear over a word that clearly sounds like a math or technical / computer programming term, the truth is that these high return investments are far from being complex. The reality is that a more apt comparison would be that of a coin-flip.Once an investor seeking high return investments gets past the initial phobia associated with the technical name of the asset they quickly come to two conclusions. The first conclusion is that contracts of this kind have virtually all of the complexity stripped out of them. The second conclusion the trader comes to is that these are indeed very high return investments with quick turnover - making them both riskier and at the same time potentially more lucrative than your more traditional run-of-the-mill securities.
The basic concept of trades of this kind are this: the trader decides whether a well-known stock, commodity, or other highly liquid asset will rise or fall before the end of the day. A small investment is then made (anywhere from $10 to $3000 for example) whereby the investor puts a fixed dollar amount down and buys a call if he or she thinks the asset will rise in price or buys a put if the belief is the asset will fall in price. Profits are calculated based on a pre-determined fixed yield and paid out if the trader has guessed correctly on the direction of the price movement. The trader doesn't care how much the price moves, only which direction. The investment return is not obscured by complexity such as the number of shares or some sort of fractional computation. The trader spends a fixed dollar amount and earns a fixed yield if correct.The flip side of earning a high yield if the trade lands in the money is the high risk associated with having the trade expire out of the money. This is a substantial risk when dealing with binary options. The lure of course then is to offer yields high enough to compensate for the elevated level of risk, in most cases this means 60-80% on most contracts. This is high risk trading made simple for those wishing to try to earn high returns in a short period of time.
Understand the underlying asset in which you are purchasing an option. Be familiar with where it trades and anything else likely to influence it. If it's a stock then will the company be making a financial announcement soon? If it's an index then look at any political factors which may have a bearing on the country's currency.Realize that the higher the rate of return of a binary option, the more risk there is involved. The risk must be weighed up against the reward before taking a position on an option.Here are several industry strategies for binary options trading. Each investor should choose the one which suits him best.The Reversal Strategy involves waiting for the market to make a sudden move in one direction on the assumption that it will not remain at the extreme value permanently. An investor should then buy the option at the extreme value, in the hope that the asset will reverse back closer to its original position, so the investor can benefit from the asset's change in direction.