The One Touch Option – Weekly Options Trading
One-Touch binary options are a very different beast than your other common varieties of binary option contracts. For one thing they can only be traded during the weekends when global markets are closed. For another they can have returns that exceed 100%, in some case by quite a lot. Obviously the greater the risks you take, the greater your potential rewards will be. These one-touch option contracts have become fairly popular in the last couple years and are now offered by most of the top brokers in the industry. Return rates can vary quite widely among brokers though so be sure to look at that whenever considering opening an account with someone.
What Are One-Touch Binary Options?
A type of exotic option that gives an investor a payout once the price of the underlying asset reaches or surpasses a predetermined barrier (Source: investopedia.com).
One-touch options are also frequently referred to as “Touch/No Touch” options as well. These options are generally available on weekends only and have an expiry window that runs through the following week, expiring Friday at market close. If your one-touch option gets to that point though, then you have lost. This is because if at any time during the week that option were to reach the target level, the contract would be immediately closed out, and your account credited with the profits due you. As far as what those target levels are, that is predetermined by the broker based on market conditions and historical data. Sometimes you are presented with more than one choice of level but usually your only determinations are the direction (call/put), and the amount to invest.
As you can see from the image above the payouts on these one touch options can be very high indeed. In the case of the Traderush platform shown here (where our personal trading account is) you can find returns as high as 600% in some cases. A maximum return of 500% is more common, but a few other top brokers offers returns up to 600% so just do your homework before jumping in to find the best returns. So now that we know what one-touch binary options are, how do people go about trading them?
How To Trade Weekly Options – One Touch Option Example
Most brokers offer weekly options trading contracts in “units,” of $50 each (though we have seen a couple with $25 units). So clearly the minimum trade amount in these contracts is the cost of one unit, $50 in our example from Traderush. The return rate offered by your broker will be based on market conditions (volatility) and the distance between current price and the target price.
Luckily, learning how to trade weekly options is a breeze. Lets say that we are decidedly bearish on Gold at the moment (true) and believe that there is at least a reasonable chance of the asset going down to test that $1200 level next week before bouncing back up a bit (not quite true which is why we are not really executing this trade). These beliefs therefore lead us to purchase a put touch option contract for two units = $100 invested. This option will have until next Friday now to reach that target level of just under $1200 USD. Because the gap at the time of purchase is relatively large — at around $50 — the return rate offered is also relatively large at 430%, or $530 on our $100 investment.
If at any point during the following week the price of Gold so much as touches that $1190 price level then our trade will be automatically closed out by the broker and our account credited with the $530 return due us. What a deal eh? If, however, we turned out to be wrong in our analysis and the Gold price never reaches that magic $1190 mark then we would be flat out of luck, a bit fat zero return. There are no refund rates offered on one-touch binary options. They are truly binary in nature.
Stay tuned for our upcoming articles on various strategies for trading one-touch option contracts!