What are Range or Boundary or In/Out Binary Options?
The world of binary options is constantly growing and evolving. Gone are the days of simple binary options trading, where buying and selling options was basic – you bet that the price would go up or down, and that was about it. These days, though, option trading strategy is much more complex and involved, with more processes and tools at your disposal.
Some of the newer methods of binary options trading out there today are called boundary binary options, also known as range options or In/Out options (depending on the brokerage you use). When you learn option trading, you will inevitably come across these various trading methods with respective brokers.
Learning how to take advantage of these option methods and turn them into powerful tools at your disposal is the focus of this article. We will cover these binary options trading methods, help you learn option trading lingo, and go over basic option trading strategy as it applies to boundary options.
An Overview of Boundary, Range, and In/Out Options
An option trader who wants to learn option trading needs to begin with the basics. A binary option is a bet that a stock will either go up or down over a given period of time. At the end of this time period is the expiry, or deadline. At that point, the option trader is either in the money or out of the money.
That is a basic, digital option. There are only two outcomes, and an option trader is essentially betting if the trade will increase in value or decrease from its present value by the close. Boundary binary options take this concept and add a twist.
Let’s say you have an asset valued currently at 100. Expiry is in one hour. With a range or boundary option, you will finish in the money if, at expiry, the asset’s value is between 110 and 99 (or 105 and 95, or whatever the terms of the trade may be).
If, at expiry, the value of the asset is between 110 and 99 – say, it climbs to 102 – you finish in the money and win the advertised return.
For In/Out options, it is a bit different. You are given a range, say, 110 and 99. You then bet if the asset’s value will be inside the range (between 110 or 99) or out of the range (below 99 or above 110).
Basic Option Trading Strategy for Boundary Options
The basic strategy is similar to what you apply for other trading methods. In other words, look at the asset and see what it has been doing during the trading period so far. Also evaluate how far away the expiry is. Generally speaking, the farther away it is, the more difficult it is to predict – but the more it pays.
Since these options can be riskier than standard options, choose only trades that make it likely that you will see a decent chance at winning. A range option with a large range is a better bet than a small one. Some traders also prefer more stable assets than volatile ones that move up and down considerably throughout the day.
Play around and find the right combination and assets for you before you begin trading seriously.