There are various strategies that can be employed while trading binary options. One such strategy is the capital gain protection strategy. Let’s talk about binary options trading and capital gains protection strategies.
A number of investors may buy binary options to offset the performance of a stock but commence the deal only after their stock position has risen significantly. A stock that is performing in the trader’s favor may motivate the investor. However, it may also result in the desirable situation of profit management. The binary options investor may not sell the shares for locking in the profit. Instead, he might opt for holding back the shares in the hope of further profits as the profit potential is quite high if he employs binary options. Thus, by using this strategy, even when the stocks have stopped rising, the investor maintains current capital gains. In case of a decline, the options will gain in value thereby compensating the reduction in capital gains.
Now a little discussion on the binaries. Depending on the preferred movement of underlying stocks, a trader gets all or nothing, in binary options. If you as a trader are able to predict correctly on the move, you earn profits. However, dramatic moves by a trader as to the predicted direction are not rewarded specially. That ways, binary options are not very volatile in nature. That is why you if you want to make a large profit, you have to trade a cluster of similar binary options. It’s a form of speculative strategy. These fixed returns brought in by the bunch of binaries add up to a considerable profit only if you speculate correctly. One binary is not enough if the movement of prices of underlying assets is likely in opposite directions. Conventional options, however, can leverage the fluctuation and rake in huge profits.
A trader may secure the purchase of a new stock. He may also buy a binary option that brings in profits due to stock’s decline in order to lock in capital gains. You buy a stock expecting its value to go up. Even if it dips, you are most likely to suffer a quite meager loss. Inventors purchase binary options to secure the converse profit course of the stock. As fluctuations in stock value can increase option prices, the capital gains protection strategy acts as an insurance and can lead to profits where the stock position experiences a decline. The trader pays a charge for the option that releases him of worries.
Binary options strategies come in various avatars. However, a closer look at each of them will reveal that there are only two prevailing themes – hedging and speculation. Market errors can be a cause of you losing money. The next risk associated with binary options is that of time frame. You can’t exercise your options any time you wish. There’s an expiration time that gets fixed at the very outset. Traders can’t come out until the option reaches the expiration time. It must however be said that these risks involved in trading binary options can never outweigh the gains and the security they bring to the investors.