Selling an Option before expiration

Selling an Option before expirationOne of the nice things about binary options trading is you have a lot more options then you have with normal market buying and selling. You can do things with binary options trading, like make a successful trade even when the asset is trending downward, that are unheard of in other types of market trading; in normal market trading, either the value of your asset goes up or you lose money. When you purchase a binary trade option you do so with a known target price point at a known expiration. What a lot of traders don’t know is that you can also sell that option before it expires.

Why would anyone want to sell an option before it expires? The answer is simple; to minimize losses if an option starts trending in the wrong direction. It is often an effective weapon for those that like to reduce binary options trading risks by placing two options trending in different directions on the same asset. This is commonly known as “hedging” your trade; you don’t stand to profit as much as you would have with just one trade, but you will also not lose as much as you could have either.

These types of trades can only be done on a site that allows option plus trading. Option plus is different than regular binary options trading; once an option plus trade is initiated, the trader may at any time request a price from the broker that they are willing to buy back the option. That is how you are able to place the trade in both trend directions and still make money. The biggest drawback to this type of trade is you have to monitor the way your chosen asset is trending every 15 – 30 minutes.

The two advantages of being able to place binary options trades that you can opt to sell before expiration are they reduce risk and they can keep your losses to a minimum.

Here is an example and explanation:

You want to place a trade based on the price of gold. You have determined through your analysis that gold is going to rise in price. You place the option plus trade in each direction. All of the sudden you notice the trend has reversed itself. You quickly cancel the trade that was going against the trend; this ultimately saved you 75% of the original trade at expiration. It works because your other trade will still be a winner and you kept your losses to a minimum on the other trade.

This type of trading is suitable for use by both beginners and veteran traders alike. Once you make a few trades using this strategy, you will become an expert at purchasing options and then selling them before expiration. It can be a very powerful tool when combined with good technical analysis to help you make some very profitable trades.

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References and Further Reading:

1. DMForex: a data mining application to predict currency exchange rates and trends (J Orrantia – 2012)

2. Can risk explain the profitability of technical trading in currency markets? (Y Ivanova, CJ Neely, DE Rapach – 2014)

3. Impact of Derivative Trading on Currency Market Volatility in India (S Singh, LK Tripathi – 2015)

4. Do Japanese Retail Traders Destabilize Foreign Exchange Market? (M Koga – 2012)

5. Project on Implementation of Advanced Methods of Economic Analyses for Prediction of Exchange Rates in Intense Capital, LLC (J Špico – 2008)

John Miller
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John Miller

John has worked in investment banking for 10 years and is the main author at 7 Binary Options. He holds a Master's degree in Economics.
John Miller
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