In the earlier chapter, we discussed about the different kind of binary contracts, which can be traded during periods of high volatility. Now, we shall look at binary option contracts which would yield maximum returns during the periods of low volatility.
1. No touch binary options:
For every asset, at any given time, a binary broker would normally offer two no touch binary option contracts. One of them would have a target level above the prevailing price, while the other one would have a target price below the prevailing price. The trader should choose the suitable contract based on the trend forecast.
If a trader believes that the price would go up, then the no touch option contract with target price below the prevailing price should be bought. Similarly, if a trader anticipates a decline in the price of an asset, then the one touch option contract with a target price above the prevailing price should be bought. The trade would result in profit (option contract would end in-the-money), if the price does not violate the target level before expiry.
If the price violates the target level before the expiry time, then the trader would lose his entire investment. The payout can be anywhere between 70% and 90%, depending on the broker and how far the target level is. A no touch options contract should be bought only when a trader expects sharp price moves in a single direction. For example, the Fed, ECB and BoJ interest rate cuts can be successfully capitalized by trading a no touch option contract. A position should be taken against the direction of price movement to profit from the trade.
A no touch option contract benefits traders who are reasonably good at forecasting the direction of the price trend, but not the target price.
2. Double no touch or range bound binary options:
In this contract, instead of a single target price, a broker would offer two target levels, one above and one below the prevailing price. If the price of the underlying asset does not breach both the levels within the expiry time, then the trade would result in a profit.
If the price violates either of the target levels before expiry, then the trader would lose his investment. A double one touch or range bound binary option contract should be selected only when a trader anticipates a decrease in the implied volatility. The contract is best suited when there are no major news announcements.