Category Archives: NADEX

Eur/USD Outlook For 2/19/2013

Eur/USD Correcting

The Euro began a near term correction two weeks ago when Mario Draghi made comments concerning risks to the economic recovery in Europe. Since then the EUR/USD pair has retreated from a resistance line, dropped below support, dropped below the 30 day moving average, created some bearish candle signals and developed some bearish technical indicators. In previous posts I have talked about the longer term trend of the Euro and I think that is unchanged.

Long Term Trend Bullish In Eur/USD


The underlying fundamentals of the world economy are basically unchanged. Current news reports are updates on current policies, not announcements of new ones. Japan is doing some money printing but the G7 and G20 didn’t make much fuss over it. The ECB has made no mention of a change in policy and neither has the FOMC (minutes released Wendesday). Unexpected weakness in EU and German GDP was met with little fanfare because all eyes were on the forward looking statements. These statements pointed to a rebound for the EU in the second half and a sharp rebound for Germany as soon as the first quarter. The dip seen in Europe, and here at home for that matter, in the fourth quarter GDP figures was expected, it was baked into the cake. A return to growth in the EU is expected as well and that is what is driving the long term trend in the EUR/USD. Unless the long term outlook for Germany and the EU change, or there is a shift in ECB policy, this trend could continue for some time.

Euro Short Term Trend Down Versus The Dollar

In the near term however the trend is down. Expectations and eagerness drove the Euro/USD to highly overbought levels and now it is correcting. Near term bearishness could bring the pair down to 1.3250 by the end of the month. This level coincides with the long term trend line and a previous support/resistance level.

What does this all mean for binary traders? It looks to me like the EUR/USD is bearish in the near term. It also looks like the pair could continue with the longer term up trend once the correction is over. For educational purposes there are two potential binary trades here. The first would be to buy puts with end of the week or end of the month expiration, depending on how bearish you are. The second would be to wait for the pair to retreat to the moving average. At this point there could be opportunity for good bullish day trades as well as weekly or monthly trades. One thing that I wish my binary broker would offer is the ability to set trades with contingent orders. If that were the case then I could set both types of orders in my demo account now and then check on them later.

There is always the chance that I am completely wrong. A break above 1.3400 would have bullish implications in the shorter term. A break above 1.3500 would be bullish longer term and could send the pair up to 1.3750. As always, the trading ideas presented in this article are ideas only and intended for educational purposes only. They should not be taken as advice to buy or sell binary options or any other trading vehicle.

Binary Options Are A Better Way To Trade

What Is The Difference Between Equity And Binary Options

Binary Options Offer A Simplified Form Of Speculating Financial Markets

There is a lot of difference between standard equity options and binary options. Really, the only thing about binary and equity options that is the same is that they are both tied to an underlying asset. Beyond that the differences are vast and account for why equity options are so difficult to trade profitably. There is quite a bit more to trading options than what the T.V. ads would lead you to believe. It takes more than a fancy computer set up and the “best charting package there is” to profit from trading that type of option. There are many headwinds that keep the average trader from profiting in the options market, headwinds that binary options alleviates.

Binary Option - A speculative financial instrument with only two possible outcomes, both based on the price of an underlying asset. If the asset closes in the money the option pays the maximum return. If the asset closes out of the money the option expires worthless. Binary options are cash settled, do not have any intrinsic value and offer a fixed rate of return. Traders buy calls if they are bullish and puts if they are bearish. Expiration times can vary from broker to broker but usually range from one hour to end of the day, week or month. There are no contracts in binary options, bigger trades are made by investing bigger sums of money per position. The price of the underlying is the strike price when you purchase a binary option. With European style binary options positions are held until expiration with no ability to close positions prior.

Equity Option A derivative financial instrument used for speculation and hedging. Equity options do not offer a fixed rate of return. The value of equity options is based on many things including the price of the underlying asset, strike price and volatility. Prices are derived using the Black-Scholes Model and are heavily weighted in the favor of the market maker. Equity options are sold in contracts, each contract grants the owner the right to buy or sell 100 shares of the underlying stock; equity options can have intrinsic value. In order to place a bigger trade you must buy more than 1 contract. Price is also determined by factors such as strike price, delta, theta and volatility. Equity options have many strike prices, not just one, and expire monthly up to several years out.


Let’s take a look at the difference between an equity options chain and a binary option chain. The biggest difference between them is that binary options do not really have a “chain”. Since there is only one strike at any given time, the price of the underlying, there is no need for a complicated chain of prices. Binary options only have an order screen with two simple choices; call and put. Looking at the option chain for Ford Motor Company we can see that there are 16 different strike prices listed, all with different characteristics. Notice the bid/ask spreads and the open interest. The bid/ask spread is the difference in price between buyers and sellers at any time. This difference is the profit taken by the market maker. Open interest is the number of open contracts in an option, the bigger the number the more liquid an option is. Please keep in mind that this chain is only showing calls. There are at least as many puts available as well.

Now let’s look at the order screen for Toyota binary options. I have chosen the nearest expiration which is 11:10. This “chain” is much simpler and easier to read. There is only one strike price,the price of Toyota at that time. There are only two choices, call or put. If a call bought at this time closes in the money at 11:10 then the trader profits 68%. Binary options have a fixed return, this is much different than for equity options. Because of the nature of equity options it is possible for an option to close in the money and for the trader to lose money.

There are other factors of equity options that keeps the average investor from profiting. In fact, most equity options traders find that the deck is stacked against them. It is said that more than 2/3 of all equity options expire or are closed out worthless or for less than they were purchased for. The factors causing this are moot when trading binary options because they don’t apply. Things like volatility, the Greeks and slippage are only a few of the complex factors that can affect the value of an equity option and do not affect binary options. Delta is one of the Greeks. It is the amount the price of an option will change when the underlying moves $1. If an option has a delta of 0.50 it will gain $0.50 for every dollar the underlying stock moves. With binary the underlying only has to move one penny in order to receive the maximum return. Another Greek that is a drag on equity options and not present in binary trading is theta. Theta is the amount of value an option will lose in one day. A theta of 0.05 means an option will lose $0.05 today. Each day that passes causes theta to increase. An equity option will lose a little more tomorrow and a little more the day after that. Notice the differences in delta and theta between the in-the-money and the out-of-the-money options on Ford Motor Company.

The two Greeks I have described are compounded by volatility and slippage. Volatility is the amount of movement a stock is expected to make. The higher the volatility the higher the price of the option. If volatility, and more importantly implied volatility, suddenly drop then the value of your option will suddenly drop. Looking at the chart of Ford Volatility we can see historic and implied volatility charted along with stock price. When implied volatility is higher than historic volatility then the options are said to be overpriced. Slippage is the difference in price between when you set your order and when it executes. Financial markets can move fast and it is possible for factors to change in the blink of an eye. It is possible to set a market order for an option when it is listed for $0.75 and get a fill price for $0.85 or higher.

There are many who will say that binary options are pure gambling and that they are a risky investment. The truth is that binary options are no more risky than equity options and may in fact be a better way to speculate the market. After all that I have gone through I am sure it easy to see just how much simpler binary option trading is. There is just one screen and two choices. There are no tricky Greeks or implied volatility to suck the value out of your options. The technical analysis remains the same but the choices are much easier to make. I think the only argument left that could possibly derail my opinions on the merits of binary trading is regulation. The binary options industry is making big strides in the area of regulation, making binary trading more attractive every day. Click here for more on the regulation of binary options.