By Darrell Martin
This is another article in the OTM Binary Options series. The first article explained OTM binaries and gave some helpful tips to use while trading. This article will explain how to collect premium on five-minute binary options by scalping.
Five-minute binary scalps are one OTM strategy you can add to your trading strategy arsenal. Five-minute binaries are available on AUD/USD, EUR/USD, GBP/USD and USD/JPY. The binary pricing will usually move very fast providing plenty of trading opportunities.
Every five minutes, there is a new option chain of binaries listed as the previous 5 minute binary options expire. You don’t have to hold your position until expiration but you can get in and out of your position prior to expiration to take a quick profit or cut your loses. The idea is to buy or sell the OTM binary strike as it is moving in your direction and when profitable, close out the position as the binary pricing can move quickly. Remember the binary pricing can also move in the opposite direction, quickly resulting in a negative P&L of your trade position but it is limited to your initial cost of the trade.
In the image above, notice that each box is five minutes. The indicator shows a cyan colored arrow signifying to be ready; the market may be reversing. A red or green arrow confirms the immediate trend of the market. If it is red, you sell; green means you buy. Each of the bars in this chart is only one tick or pip. A small movement can make a lot of difference. Even a few pips can take you up or down to the next strike. If you have a strategy or a system you are using that gives you the immediate trend of the market, you can see how just a couple of ticks can make a big difference. The strikes on five-minute binaries are only three ticks/pips apart. In the next image, you can see how just three pips can make a $30-50 difference very easily.
Since there are only three ticks or pips difference, if you were to buy the 121.06 strike for 47.75 and the market moved only three ticks, you could get out around 83.75. You can do a quick scalp on a five-minute binary and exit with a take profit goal of $20-30. This is not something where you are looking to hold it for the long term; you are just looking for a couple of ticks. Repeatedly, as the market moves a few ticks down, take profit of $20-30. As it moves up, again, take profit of $20-30.
What happens if the market moves against you? With five-minute binary options, the binary pricing will most likely result in very quick moves. Using the same price ladder chart and scenario above, let’s say you bought the 121.06 strike for 47.75. Because your risk is known up front and capped, the most you could lose is $47.75. However, you can exit at any time during those fast-moving five minutes in order to cut your losses. Looking again at the image above, you can see that the price to exit this trade, should you want out immediately, is already at 30.75. This indicates a loss of $17.00, not including fees.
Don’t just randomly choose your binary. Use the lower priced OTM binaries because you have some type of indicator telling you of an immediate trend. You are not randomly buying something with low risk. You are doing it for a reason with some indication of what the market is doing. Remember, with OTM binary options, the market has to move and go in the direction of your trade for you to be profitable.
Five-minute binary scalps are a fast moving strategy that can be used on OTM binary options. Always try out any new strategy in demo before risking real money to make sure this strategy fits your trading personality.
Futures, options and swaps trading involve risk and may not be appropriate for all investors. Past performance is not necessarily indicative of future results.