Fixed Payout Binary Options Strategy

Since the payout for these binary options is fixed, all the trader needs to worry about is whether the expiration price will be above or below the strike price. The strike price for the option is set simply by placing a Call or Put order at the current market price.

There is also the time factor to consider. Some binary options brokers start out at the maximum payout, and decrease it as the expiration time nears. To get the maximum payout, you'll want to place your order earlier in the hour to avoid the reduced payouts for trading late. On the other hand, you may want to trade as close to the expiration time as you can, to avoid the uncertainty that comes with time.

Here are some general strategies for trading fixed-payout binary options:

Trade During Trends A strong, protracted trend is the best case scenario for trading. Simply place a Call in an uptrend, or a Put in a downtrend. As long as the trend holds, the expiration price should be safely above your strike price. When you do see a strong trend, place your trade early. By placing your order earlier, the chance that your trade will expire out of the money due to a temporary retracement or reversal will be less likely.
Trade On Reversals A price reversal near an important support or resistance line, pivot point, or fibonacci retracement can present an opportunity to trade in the direction of the new trend. Look for a strong trend to suddenly reverse at one of these levels. Be careful not to trade into a reversal that turns out to be a temporary retracement of a trend. In that case, you can trade the continuation of the trend when the retracement ends.
Trade On News Economic announcements such as unemployment numbers can present an important short-term trading opportunity. The forex financial calendar at Forex Factory will keep you informed of pending economic news, which you should always be aware of when trading. Look for a sudden price move after an important economic announcement, and try to get in on it as soon as possible. If you miss the initial move, look for a possible reversal at a support or resistance level.

Hedging Fixed Payout Binary Options Trades

While it's not possible to close a fixed-payout binary trade before the expiration time, you can open additional trades to hedge against a losing one. Let's say that you placed a Put on a binary option, but the price suddenly reversed and is moving above your strike price. In this case, you can place a Call order in hopes of reducing your potential loss or even turning it into a profit.

Danger Zone

If your Call order price is above your Put order price, this creates a "danger zone" between the two strike prices. If the expiration price is in this area, then both options will finish out of the money, and you'll incur a large loss. Even if one of your options finishes in the money, you will still incur a small loss, unless the option that finished in the money was larger than the other one.

Assuming that you placed two trades of the same size, if one option finishes in the money and the other one does not, you're looking at a small loss of 8-15%. If both options finish out of the money (the "danger zone"), your total loss will be 85-90% of your total investment. Of course, if the winning trade size is larger than the losing trade size, you may end up with a small profit.

Because of the overall negative expectation of this trade setup and the risk involved, you'll want to be very careful when placing a Call option above a Put option. You'll need to make sure that your Call order price is as close to your Put order price as possible. In fact, you may want to avoid this setup altogether. Because by placing your Call order below your Put order, you can eliminate this risk altogether.

Profit Zone

By placing a Call order below a Put order, you create a "profit zone" between the two prices. If the expiration price falls between these two prices, then both options will finish in the money. If the expiration price falls outside one of the contracts, then you'll incur a small loss. This is the most profitable trade setup you can achieve in binary options trading, and one you should look for as much as possible.

Here's an example setup: Let's say you place a Put option early in the hour in the middle of a downtrend. Towards the later part of the hour, the price reached a support area and reverses. You can place a Call option here in hopes of a double payoff. If both options finish in the money, you'll win 60-70% of your total investment. If one of the options finishes out of the money, you're left with a small loss of 8-15%.

As an alternative, if your Call option is half the size of your (currently winning) Put option, then you're looking at a small profit of 10-18% if the Call option finishes out of the money. In the event that your Put option finishes out of the money, your total loss will be 50-60%. The increased downside risk in this example may be worth the greater likelihood that your Call option will finish out of the money, still allowing you a small profit.

If you think it is likely that your original Put option will expire out of the money, then you can place a Call option that is twice the size of your Put option. This way, if your Put option expires out of the money, you'll still make a small profit of 10-18%. Use your judgement as to which direction this price is likely to go before expiration.