Since the November Presidential election in the United States, equities, currencies, gold and crude oil have been trending hard. However, this is the week before the Christmas holiday, and trade activity tends to lessen during this week historically, leading to lower volume and price range. This was evident yesterday in the S&P 500 mini futures, as volume was below one million, its lowest volume day since late March, with a price range of less than 10 points.
The U.S. economic calendar today is the lightest of this week; and with the holiday approaching and markets changing, it can be difficult to day trade these markets. In these markets, binary options offer an advantage – you can make a trade and walk away, knowing exactly how much money is being risked to produce a potential reward.
Before we look at the trade idea below, please note this writing is not intended for specific trade or investment advice; rather, its intended use is for educational purposes only.
Let’s take a look at the S&P 500 futures, referring to the chart above. Yesterday, the index traded in a range and failed to take out 2254 on the attempts lower. Typically, when the volume gets this low, we have seen this future make new all-time highs as the old market adage comes into play to “never short a dull or quiet market.” After trading lower yesterday, the S&P 500 bounced and now could be targeting the 2273 all-time high print during this slow week.
Currently, the S&P 500 futures are trading at 2265.00. If you thought this index will trade and settle this week at new all time-highs, you could choose to buy the weekly 2272.50 binary option expiring Friday at 4:15 pm EST. The purchase price of this option is the current 37.25 offer, meaning that 37.25 would be your total risk. Since these binary options have a $100 value per contract, the reward is the difference between the purchase price and the $100 payout, or a potential profit of $62.75 in this case. This means this trade would pay over a 150% return if this index settles the week just 8 points higher than it is currently trading.
During the holiday season, binary trading may have an extra appeal because you can place a trade knowing the parameters, walk away and let it work. Binaries offer many ways to profit on a variety of instruments; this is just a single example of how that might work.
Note: Exchange fees not included in calculations.
Futures, options and swaps trading involve risk and may not be appropriate for all investors. Past performance is not necessarily indicative of future results.