With the Sell option digital options feature now a confirmed hit with traders, we turn our attention to strategies which involve selling off your open contracts. Although some traders claim to have found ways in which to actually profit from the Sell feature, in most cases it is used as a means of loss limitation. Of course one would never enter any trade while planning for it to finish out of the money, but this doesn’t mean that it isn’t wise to have a backup plan for times when investments simply are not going the way you intended.
Sell offer amounts are going to vary by broker, as well as by asset movement. Whenever the price is moving against your forecast, your digital options broker isn’t going to offer you a fortune for your contract. Even so, if you’re able to clearly note that your contract is headed towards an out of the money finish, the loss limitation strategy needs to be used to ensure that some of your investment amount is recovered.
What about times in which the asset price is moving about in an erratic manner? There really is no set guideline for these instances. The best advice would be to monitor price movement closely and not make a final sell decision until the last minute. Few things are going to be as frustrating as opting to sell your binary options contract and then watching the trade go on to finish in the money. Even so, this is the chance you’ll have to take each time you decide to sell.
The purchase offer must be factored into any decision. If the offer is large enough, you may decide to sell even if the price is moving in the direction you predicted. Why? Simply because there is never any guarantee that a digital options trade is going to end in your favor. If the offer is nice and you have any doubt, you could decide to sell. Alternately, if you feel the offer price is too low and you’d like to let the trade play out, then by all means do. Strategies can be excellent, but there will be times when you need to move on to plan B instead of taking a loss.
Although purchase offers may vary, every purchase offer is going to be time sensitive. The option to sell typically disappears whenever the expiry time closing draws near. If you do decide to wait until the last minute to make a decision, be sure to allow yourself enough time to execute the sale. It’s wise to check with your digital options broker ahead of time to see at exactly what point the purchase offer will be presented and at what point it will be retracted. This knowledge will help you make plans in advance.
Unlike traditional trading, when trading digital options there is never any exchange of actual assets. You do, however, have the purchased contract position and that now gives you extra loss limitation power when you partner with a broker such as options brokers which does offer the sell option feature. Hopefully, you won’t need to use the loss limitation strategy too often, but do keep it in mind for the times when a financial loss seems likely. Some recovery of your investment amount is obviously always going to be better than a 100% loss.