Binary options on the GBP/USD: A few approaches
February 16, 2012 2:01 AM EST
The question is what might be the best approach to trading the news. Traders could look for signals to trade technical breaks or surprise announcements before and during Governor King's talks. With a binary trade, such as an hourly CALL or PUT option on the pair, the decision boils down to direction and value at risk. For example, in a downtrend you might want to place an $850 hourly PUT option on the pair with a 70% return. If the insurance on the trade were 10% you would have either $1,445 or $85 back from the trade. (Alternatively, the example above shows a current 85% return on the trade, with 0% insurance for out-of-the-money expiration).
If you don't fancy trading on the news, another approach would be to trade on the technicals thru near-term (hourly) support and resistance levels. In this regard a trader might be agnostic to the news on the pound and Governor King's comments, focusing instead on the technical bounce off a support line, or pull back from near-term resistance levels. The hourly window could be a good consideration particularly if impact on longer time frames are less clear.
Last point for consideration for more advanced traders is a hedge on the pair. It could be interesting to set up a binary hedge on the GPB/USD with conventional forex positions, trading for example a bearish FX strategy together with an hourly CALL option to hedge against a potential failed breakout.
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