One of the greatest fears of any trader on any market is that he does not know in which direction the market will move. Being able to keep all bases covered is a key to any strategy, and “Collar” binary options strategy offers just that. By buying call and put options at the same time, you can achieve a “free collar”, a state where premiums cancel each other out, and you can only profit from there, or cancel your losses completely; the one thing you can’t do is lose.
Arbitrage technique or strategy?
Many theorists consider the “Collar” to be an arbitrage strategy, as its primary goal is to minimize risks and exposure first, and enable any gains second. Those who count it as a binary options strategy also classify it as advanced, as it takes time to master as well as skill to implement successfully. By opening both call and put binary options simultaneously, you are covered whichever way the market goes, although novices will find it difficult to achieve anything better than breaking even, as their profits and losses will generally cancel each other out. This is because novices do not care for brokers who enable things such as “pending orders” to their clients. And this is essential to success of this strategy. You need to be able to buy and sell options simultaneously or this won’t work. Despite being tricky to accomplish, by buying call options and selling put options on the same instrument at the same time (provided both are out of the money) you can negate costs to a huge extent – even completely. Another reason why rookies cannot achieve this is that the few brokers who allow such actions require premium membership and/or some experience, and rookies generally lack both of those.
The way this works is that, since both of your options were out of the money, in the worst case scenario, they expire as such and you break even. Otherwise, since they are the opposites placed on the same instrument, they can’t both expire in the money. If, say, the price of a commodity you placed your binary options drops, your put option would be in the money, and yes, you could have just placed the put option from the start and reached the same outcome. But what if you had, and the price went the other way? No, this is how you keep both bases covered. This way, your put option expires in the money, but the premium of your call option drops to zero if the price freefalls further, meaning you have no downside here. Your call options are worthless, but put options are in the money. Another advantage to this strategy is that it can be used to curb risk on other markets as well, by enabling you to bet against yourself. It just takes time and practice to master it. Not to mention the right account with the right binary options broker.