Pair Options Trading Strategy
Pair Options Trading Strategy for Maximizing Trading Profits
Many investors have wondered what exactly pair options trading strategy is and what are its benefits in trading binary options. I expect that the term pair can provide a clue to the fact that it involves 2 equities or perhaps a couple of purchase instruments. Yet set investing as a whole continues to be the gray region for many investors. This article will explain in detail using an example for you to comprehend the term pair trading and the way to use it in binary options trading.
Pair option trading strategy Requirements
Pair option trading strategy basically requires the trader to assume on the overall efficiency of any chosen couple of stocks and shares. The particular trader is assuming that any particular one of the shares chosen inside the set pair will outshine the other share inside the set pair with in a given time set in advance. If the trader will get his prediction correct and the picked share outshines the other, he will make a winning trade which will make him a profit. Make a bad share choice and the trade ultimately winds up with a loss.
Pair Option Expiration
Options deals always expire at a set time and date. In putting the set pair options trade, the actual investor needs to set a goal with a specific price of cash return and that being done prior to undertaking the actual Pair Options Trade. This is a crucial move in order for the appropriate risk management strategy to be used in an effective way.
Pair option trading Theory
This moves us to the theory of fixed pair options and floating pair options.
Floating Pair options
Floating Pair options provide the trader the option of ending the ongoing trade personally ahead of the final set time of expiry, and by that allowing the actual trader in the trade to guarantee virtually every profits produced in real time.
Fixed Pair options
Fixed Pair Options do not offer this advantage to the trader, in this binary options trading system the trader has to wait for the options in mind to expire before being able to cash in on the profits the trade has made. Prices regarding return on investment are usually increased for Fixed pair Options than for Floating Pair options.
How To Trade Pair options
Following the explanation of how pair options trading strategy works we have some idea of how we can make use of them to make a winning trade, the question that comes to mind now is how do we actually trade the pair options system? We will explain this using a trading example using the stocks of IBM and Facebook.
Pair Options Trade Example:
For this example we will presume that the binary options trader assigns $1000 for this particular trade and the payment of 40 percent return on the investment.
We will also presume that the trader places a pair option trade that assumes that the IBM stock will outperform the Facebook stock and all this will be done by the end of the actual month in question.
The trade in question is placed with half the original investment of $1000.
If the Pair Options Trade has in reality did what it was supposed to do, hence by the end of the actual month, the IBM stock outperforms the Facebook stock, then the trade will receive a payout of $1400 on his initial investment:
Initial Investment of: $1000
Returned profit of 40% amounts to $400
Total Return of $1400
When a trader uses a fixed pair options trade, there is a need to wait for the actual expiry of the option in question which is usually one month in order to cash in on his profits and all that presuming the IBM stock performed better than the Facebook stock at the end of the month when the option expires.
With the floating pair options system, the trader can at any time he may choose, will be able to sell the option and that means before the month end and the option expires, assuming that the IBM share has outperformed the Facebook stock at the time the wishes to take the profit.
So what happens if the trade goes against the trader and the Facebook stock actually outperforms the IBM stock? The trader end up losing his initial investment.