Binary Options Strategies: Fence
To be honest, there are relatively few pure-blood binary options trading strategies; most are just adapted from regular options and applied on binary options as well. Fence strategy is not one of them. Unlike the iron condor (and iron butterfly), which require a great deal of skill and luck (not to mention a highly sympathetic broker) to pull off, the fence strategy is a breath of fresh air. A mid-level strategy designed exclusively for binary options, but can be applied on other financial markets as well, to a point.
The main goal is to make the most out of binary options on the same instrument, while limiting exposure and potential losses. The idea is to cover both angles of the story, both outcomes of a binary option, and profit from both, with some luck, or at least use the payout from one binary option to dampen the loss on the other side. The worst case scenario means you lose on both fronts, but since we’re talking about binary options here, your losses and profits are capped either way.
Essentially, you need two binary options on the same financial instrument, but with different target prices and different expiry time. For instance, you predict an upward price shift and bet accordingly – you bet that price will be higher than a certain amount, say $45 in 15 minutes. Then you wait and see what happens. A few minutes later, hypothetically, the price does rise and you’re in the money – the price is $48. However, you realize there will be a downward movement as well, so you place another bet, only this one says the price will be lower than, say, $47 in 15 minutes. There are four possible outcomes: the one where both binary options expire in the money (and you make maximum profit), the one where only the first option expires in the money (and your losses are limited), the one where the second options expires in the money (essentially the same thing, if you bet equal amounts of money and the return was the same) and the worst case scenario – where both options expire out of the money (which is highly unlikely). The idea is, of course, to score a hit on both sides, and “fence” in the profits. Naturally, if the market moves against you, you can try to limit your losses, but the outcome greatly depends on skill and luck. If you manage to predict the shift in the trend as well as to get the timing right, you stand to gain a lot of money in a very short time span. Although, some brokers may attempt to discourage this strategy by limiting the number of options you can enter or try to prevent you from exercising this strategy, you can always make bets on separate trading platforms, as long as the underlying financial instrument is the same.