Butterfly Option Strategy

I get home at about 5.30, so all I can really bet on is Wall Street.  First thing, check the latest USA financial news on Google.  Check whether the market is surging or tanking? Yesterday it was surging, so helped me with method 1 below.   Secondly, always plot the real-time graph of the binary.

Let’s take the binaries on IG Index or ExtraBet for instance.  Not focusing on any specific market, at the end of the session, it will either be 100% or 0%. Towards the end, if the binary is say 85% and the change of the underlying index is relatively big, there is a good possibility that it will end up at 100%, so you place a bet that it will.  Unlike Betfair, if you realise you’re wrong, you just sell and cut your losses. The earlier you place the bet, the better the chance of it switching direction but the more money you can win. So if you bet at 60% half way through the session, you could win 40x or lose 60x BUT if it heads down to 40%, you have the option to sell. By keeping an eye on the underlying index, I have done it quite well on FTSE and Wall Street hourlies, twenties and fives, plus gold and silver. What tends to get me is that I don’t obey my stops.

Of course the argument against this is that if you buy at 85%, then the fair price is likely 84%.  You have started off by losing. By selling if it goes down (and bearing in mind that it might go down but still close up), you have just increased the fraction of times that you make a loss. As you cross a spread that time, you have not actually limited your expected loss, you have actually doubled it.

We know that binary bets make a spread over a perceived ‘fair value’.  Think of it in % terms so that when it is 80-85 they are saying that there  is between 80 and 85% change of an event occurring. If the real chance of it happening is 82.5% then buying 85 or selling 80’s puts you on the wrong side of the trade immediately. Continue doing it long term and you lose money.

The only time you should be selling 80’s for example is when the underlying volatility is greater than the binary company has accounted for. This would mean that the binary price should be below 80 and you would be onside. Since very few people will go through the hassle of calculating the volatility of the market, what many are doing is no more than flipping a coin and trying to guess the outcome.