Digital options, or binary options, offer investors an easy and profitable means of trading online. Trading digital options is easy – investors only need to select between two investment choices, whether they believe a security will go up (through a CALL option) or fall (through a PUT option). The online nature of digital options allows investors to learn more about their trades at a quicker pace, leading to sizeable returns.
The two options – CALL and PUT – are the opposite of one another. The former, digital call option is where an investor takes a view that the specific security will rise in price upon expiration. In contrast, a digital put option is an investment strategy whereby investors believe that the price of a security will fall below the strike price upon expiration. It provides investors with a pre-determined level of return when the security falls below this price. If the price rises above the original price, no payout will occur to the investor.
A digital put option is somewhat similar to the investment strategy of short selling in traditional trading. Investors typically will execute a digital put option strategy when the market is bearish or if they want to limit their risk when the market demonstrates volatility.
In a bearish market, a number of asset categories tend to exhibit signs of volatility and many drop in price. These asset categories include currency pairs, indices and stocks. In these instances, it is important for investors to keep a close eye on the markets to understand the triggers behind these movements in the market. The online nature of digital options create an opportunity for fast turnarounds and by keeping track of the market movements, investors can benefit significantly from the drop in price. By understanding the movements, a digital put option strategy can be implemented.
Volatility is also a driver of implementing a digital put option strategy. When markets are volatile and investors want to manage their risk, implementing this strategy can be a solid option to achieve this. These options help achieve this in instances where an asset is increasing in price in a volatile market over an extended period of time. The likelihood of the price falling may be high and makes this investment choice a reasonable one. It is important to take the time to perform research in advance before executing bids on this basis.
Digital put and call options are the two basic strategies of digital options trading and are a key aspect of the simplicity of this method of investing. A put strategy is an important tool for a digital options trader, regardless of the asset category they are trading in. Gaining a better understanding of it will assist them in achieving positive financial returns.