Posted on Wednesday, 01 February, 2012 19:24 Wednesday, 01 February, 2012 19:24 | Location: London | Hits: 28Report Abuse
Binary options are extremely profitable but at the same time, these options include great deal of risk. binary options are called all or nothing trading which implies traders can either gain huge profits or there is always a chance that trader will get nothing. Various traders are adopted by traders avoid the possibility of losses. One of the main strategies is buying put spread.
In buying binary put spread, a put option is purchased and further sold for a reduced upfront premium. The returns are predetermined which are lower than the strike price at the time of expiration. Strike price is the price at which the option is bought or sold for the underlying security. This strategy is beneficial in bearish option trading where the fall in the movement of the security is anticipated during the time of expiration. Traders can also apply put spreads when they are in position to confine their risks to the premium amount. The main benefit of buying put spreads binary option is that it is easy to purchase an outright option in immense unpredictable market. Put spreads in binary option also save traders from risks of stop loss before the frequent slippage of market in the expected downward direction. The option limits the risk of buyer of the option to the premium amount but on the other hand, the buyer will suffer numerous losses if the price of the option increases greatly. Traders should apply this strategy according to the suitability of the trade.