When to Call or Put in Binary Options
Binary trading has the real potential to lead to success. Once you have learned the ins and outs of how to trade binary options there is no reason you can't use your experience to profit.
The key thing to remember about options trading, and one of its main advantages, is that it's all or nothing. You either profit on the trade or you lose but, and this is what is making it so popular, you know what you stand to win and what you could potentially lose before you place your trade and therefore you can always make calculated decisions.
You can usually only choose between two main options. Your choice when trading in this way is to pick between whether the current price of an asset will rise or fall within a set time. If your prediction is right, then success, you've made a profit but if your prediction is wrong then you have lost the trade. Binary options trading works on the premise that you choose between making a call trade or a put trade.
Here you will learn what call and put trades are. This guide covers the following:
- When to use call vs put trades to your advantage and ensure winning trades
- The differences between call and put and how to benefit from each option
- The importance of understanding these two trading options to make a profit
Call vs Put
Call vs put is a simple way of representing different market positions and whenever you trade binary options you will be choosing between put and call. As the trade you have control of all your trades and will be aware of all potential risks and rewards even before you enter any contract. This makes binary options popular with new traders as well as experienced ones and here we'll be looking in more depth at the differences between call vs put trades and when you might choose each one.
Choosing to Call
In simple terms, when opting for the call option you are choosing an option with what is essentially a safety net in place, this allows the owner to buy up a certain number of shares of an asset at a certain price level, often described as the strike price by a certain date, known as the expiration date/time.
Call options usually have to meet the following conditions: firstly, they must have an expiration date, secondly there must be a strike price and thirdly there must be an actual underlying asset involved such as currency, commodity, stock or index.
For example, you may make a prediction that the price of the stock of company X will rise from its current price which is $40 within the next hour. You will then make the decision to invest a nominal amount, perhaps $10 for this specific trade. If by the end of the hour the price has risen by even a single cent, you will win this trade. Your actual return will be your investment back plus the return that the platform or broker is paying for winning trades. If it falls in value within the hour, you lose your trade.
Traders who execute binary call options closely monitor financial news surrounding the asset they have in mind so they can identify any binary trading signals and determine if the asset is set to rise. This can also work in the opposite way and can help you decide not to trade on an option due to a belief that its value will fall. You only buy a call option because you believe the price of the stock in question is going to increase.
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Choosing to Put
A put option works in the opposite manner to a call option. A put option means there is a safety net in place which allows the owner to sell a certain number of shares in an asset at a strike price by the expiration date/time.
Just like a call option a put option is characterised by certain conditions. There must be an expiration date, there must be a strike price and there must an actual underlying asset, as in the case of the call option.
Put options are based on you predicting if the price of an asset will decline in value within the time set by the expiration date. Using an example similar to before, you will make your prediction that the stock of company X will decrease by the end of an hour. You will once again stake a nominal amount, say $10 again, in this instance. Once again, if the price decreases even by a single cent you will win the trade and receive your investment and the trade back.
Call or Put: You Decide
Binary trading depends upon the financial common sense and experience of how binary options work. Your expertise and understanding of the markets should guide your put or call predictions, ensuring they are more than likely to be correct. With the right research you should almost always be able to correctly predict whether to make a call option or put option and with the guidance of your broker or signal provider this should be easily manageable.
When making a put vs call it can be used alone or combined with each other to provide degrees of influence or protection for your portfolio. It is possible to use options as insurance to protect any gains made in stock which is looking unstable and they can also be utilised to create a reliable income from underlying blue-chip stocks. They can also be used to create serious growth in your portfolio.
Looking at put vs call at from the basest level, calls are the right to buy and puts are the right to sell. Using them wisely for the benefit of your profits is dependent on your skill and experience. No trade you make should ever be a guess, not even an educated one, and this is why the background work you carry out is integral to your success.