The equity markets global are generally consider volatile and can be categorized as “riskier assets”. The US benchmark S&P 500 Index has a annualized volatility that averages approximately 19%, which make equities a solid candidate for binary options.
Binary options are “all or nothing” options which have a payout that is fixed either in or out of the money. The size of the move is insignificant relative to the direction of the move and therefore instruments that are volatile give an investors multiple opportunities to generate returns.
There are multiple ways to trade binary stock options. They can be transacted intra-day on hourly traders or end of day/week with daily or end-of-week options. Individual stocks can be traded fundamentally as well as technically.
Fundamental stock trading can be tied to either earnings releases or economic/monetary data that is released. Movements in the marketplace around earnings releases are generally quick as most of the time, there is an release that is greater or worse than expectations. Even if a release is in line on the top or bottom line, there are many factors that go into a release that can move the price of a stock. For this reason, both individual equities and equity indexes are instruments that provide binary options trading opportunities.
Investors can also trade binary stock options around economic data. Data released by governments reveal the state of an economy. In general, stocks perform well during times of economic prosperity and tend to decline in price during soft patches and recessions. Positive or better than expected economic data can drive the prices of stocks higher make binary option calls favorable. On the other hand, worse than expected economic releases with drive binary put option performance.
Momentary policy will also create momentum for stocks and stock indexes. Interest rate increases are generally bearish for stocks as the future discounted value of the cash flows of a stock are reduced with higher interest rates. In addition to the actual decision, that statements that follow also can move markets.
Technical analysis is the study of price action as many analyst believe that historical price action can give clues to the future direction of the markets. Markets create historical patterns which reflect the fear and greed in prices. Technical analysis is broad, as studies can range from momentum indicators to support and resistance. Patterns and stochastic as well as statistical indicators can be use to help analyze what the market is expressing.
Support and resistance are hallmarks of technical analysis as it conveys levels as which consensus was reached for a period of time. Support is levels in which prices have not been able to fall through and demand for stocks is greater than supply. Resistance is a level in which prices have a hard time moving higher through and supply for a stock is greater than demand. Support and resistance can be measured with trend lines, congestion, moving averages or horizontal support. Resistance levels are generally measured in the same way. These tools can give broad assistance to a trader and make the difference when attempting to generate solid returns.
Stocks and stock indexes are interesting and profitable instruments for binary options trading that give investors a different vehicle to generate risk.