Whenever trading binary options, the main concern a trader has is to look for the best possible setup for the option to expire in the money. If the option is in the money at the expiration date, then this means the option is profitable and the trade was successful.
The following are the conditions for a binary option to be considered profitable:
- buying calls implies a trader is looking for price to increase, and therefore, in order for the option to be considered profitable, the price at the expiration date should be bigger than the striking price (the price the option is actually bought).
- If these conditions are met, then the option is said to expire in the money, and it is considered profitable;
- buying puts implies a trader is looking for price to decrease, and therefore in order for the option to be considered profitable, the price at the expiration date should be lower than the striking price (the price the option is actually bought). If these conditions are met, then the option is said to expire in the money, and it is considered profitable.
- Based on the above, the expiration date is important when trading binary options and, based on the time frame analyzed, the expiration date should very, hence the binary options should differ.
- On the short term time frames like the hourly chart, the shortest expiration dates are preferred, but I would rule out the sixty seconds binary options based on the hourly chart as the time frame is quite big for that kind of a short expiration date. The following binary options can be traded based on the hourly chart:
- options with extremely short expiration date: two minutes, five minutes, up to hourly expiration dates. Anything above should be treated on other time frames;
- one touch options: identifying a range on the hourly minutes chart can be used in trading one touch options as ranges are being defined by price constantly crossing a specific level.