Binary Options: Strategies for Directional and Volatility Trading

CHAPTER 16

The Volatility Short Trading Rules

There are thousands, if not hundreds of thousands, of books and courses available that teach various trading strategies. Many of these strategies are technical and some are fundamental. The purpose of this book is to get you comfortable with binary options so that you can use them together with various technical and fundamental strategies.

There is no perfect strategy for trading any instrument. Sometimes edges become available and successful traders start to exploit them until they disappear. With proper risk management, traders can take advantage of certain market edges for periods of time. It is highly unlikely that anyone will ever sell you or tell you the exact rules for their trading system that is very profitable. Even if they had a great system, they would most likely prefer to trade it rather than sell it or write about it in a book.

Premium collection is a strategy of speculating on an underlying instrument to stay within a range. During high volatility, you are speculating on its staying in a wider range, and during low volatility, you can speculate on narrower ranges. This strategy is fairly widely used with vanilla put/call options. One of the greatest appeals of this strategy is the principle of normal distribution. The idea is that any underlying instrument is most likely to end up where it started after any period of time based on normal distribution.

Binary options also allow you to create a volatility short system. ...