The boundary strategy is unique to digital options trading in that it focuses on not the put or call options, but the upper and lower asset prices at a given time. The goal is to predict whether an asset price will remain in-between two set points and not break out of these while the trade remains live. Profit can be earned regardless of whether the asset price goes up or down, so long as it stays between the two set price points.
An example of a digital options boundary trade would be the purchase of a contract with the selection of an upper and lower price point and expiration time of one hour. In this example the upper price point is $100 and the lower is $80. Should the price of the asset remain anywhere between these two prices during the one hour period, the trader profits. However, should the asset price exceed $100 or drop below $80 at any point, the trader loses his or her investment amount.
The Boundary across a period of time
Examination of past asset performance will be a critical part of using the boundary strategy effectively. Technical analysis should include determining the highest and lowest prices that the asset has reached. It will also be important to determine the average price of the asset. This will be the price range that the asset remains in the majority of the time. A glance at these three factors will quickly show a realistic boundary. From there, boundary limits can be made more specific by analyzing recent asset performance.
There is one variation of the standard digital options boundary strategy. This would be the “out” strategy. This type of trade requires the trader to predict if the asset price will break out of the set boundaries, either high or low. Should the prediction be correct, the contract expiry time ends immediately, with the trader profiting from the trade. The out strategy is generally considered the riskier of the two. However, it can be rendered less risky when the upper and lower boundary price points are not spread too far apart.
The boundary strategy can be used in both bullish and bearish market conditions. A bullish market will present more risk, as asset prices may fluctuate quite a lot when investors are actively making purchases. Bullish market conditions will sometimes offer more stable conditions, though drops in asset prices may also be seen under bullish conditions. Determining what the market conditions are prior to executing a boundary binary options trade is highly recommended. Both general market sentiment and sentiment related to specific underlying assets should be factored into the trade decision.
Contract expiry times will also need to be considered. Longer expiry times will typically increase risk as they allow more time for the asset price to break out of the set boundary. Alternately, longer expiry times will be beneficial when using the out of boundary strategy. This will allow more time for the asset price to break out of the set price points. Each binary broker may offer different expiry times on boundary trades. Boundary trades are typically not made available with extremely short expiry time periods, such as 60 second trades.
If only locating the actually Boundary line was this easy?
Many digital options traders employ the boundary strategy when neither the put or call options seem the best choice. can be extremely profitable, but will require a good bit of analysis to be completed prior to purchasing a contract. Over time, those who use the boundary strategy will learn how to quickly analyze past asset performance and spot key boundary trade opportunities. Boundary trades are just one alternative to the basic Put/Call trade and can be considered a viable trading method using many different asset types.