Learning how to sell options before expiration times in binary options can be a great way to limit your losses and also build some great binary trading strategies. In this article we’ll cover the following: 1) What is the use of a buy back or sell option 2) How do I sell options before expiration 3) How to use the Sell Option/Buy Back Option as a strategy
Buy back or sell options is a relatively new feature that is available with some binary options brokers. Simply put, the buy back or sell option enables traders to close their trades prematurely, or in other words before they expire. For example, if you placed a CALL option on EUR/USD, investing $50 and the trade expires in 45 minutes, under normal circumstances, you wouldn’t be able to do much, even if the trade is going against you or ending “out of the money“.
When you make use of Buy Back or Sell Option, you would be able to close the trade any time up to last 15 minutes before the trade is locked.
1) What is the use of Buy Back or Sell Option
The Buy back or sell option has become a great way for traders to start using this and build it into their binary options trading strategy. The buy back or sell option makes it possible for traders to stop trading if the trades are going against them thus allowing traders to cut short their losses.
While its easy to draw a comparison between buy back or sell option to stop loss in forex, there is a fundamental difference in the way it works. A stop loss in forex basically enables the trader to set up a certain amount they are willing to risk in losses. If the trade falls further than the stop loss, even if it is by a few pips, the trade is automatically closed.
A buy back or sell option on the other hand works different. In binary options since the risks/rewards are already specified, there is no need to set up a stop loss (in fact stop loss is not available in binary options trading). However, the buy back or sell option provides the feature for traders to close their trades. By doing so, traders get back a part of their investment based on the current market conditions.
It should be mentioned that even if you sell your option before it expires, you won’t be completely immune from losses. However the losses that you incur would be small compared to losing your entire invested capital in a particular trade.
2) How do I sell options before expiration?
No! The sell option is not available on all assets and is not available all the time. There are certain criteria that needs to be met in order for the Sell Option to be activated. Firstly, depending on the binary options broker you trade with, make sure which instruments qualify for the sell or buy back option. In most cases, the sell option won’t be available for the first 15 minutes of your trade and during the last 15 minutes of the trade.
The returns that you get back if you use the sell option varies based on the trading instrument and the market conditions. As a general logic, the higher your trade is against you, the lower the returns you get and vice versa.
3) How to use the Sell Option/Buy Back Option as a strategy
The Sell option offers many benefits for traders and the best way to illustrate this is via the following example.
You place a ‘High’ option on EURUSD High/Low Option
The present market price is 1.35515
The contract expires in 45 minutes
With the above example, you placed a trade for $50 speculating that the price of EUR/USD will be higher than 1.35515 at the time of expiry. However, with the market conditions being highly volatile, you notice 20 minutes into the trade that the market price is 1.35475 (a difference of 40 pips).
With another 25 minutes to go and the price being increasing impossible to increase using the buy back or sell option you get a certain percentage of the $50 that you invested back.
I've been a professional trader for over 5 years.
Currently I work as forex analyst for different investment companies.
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Tagged with: binary options • buy binary options • sell binary options • strategies
