The Long Shot Binary Options Strategy

The Long Shot binary options strategy is a strategy wherein a trader buys an option that is way out of the money in hopes that the price of the underlying asset will move a long distance across the strike price. Its name, long shot, means just that. This strategy has a low chance of success but can result in massive payouts when done correctly. The long shot binary options strategy requires the trader to invest only a small amount of money with the prospect of a larger payout.

The profits can be large when traders use this strategy, and the losses are much smaller. Commonly, the strategy needs to succeed 5 times for an investor to see a really big profit. However, no matter the odds, the long shot binary options strategy is undoubtedly linked with high payout ratios, often exceeding well over 300%. This attractive reward is what motivates binary options traders to stay glued to the market sentiment and master this strategy.

While the long shot binary options strategy may be known for its great rewards, it is also definitely associated with a higher level of risk. But even so, the long shot strategy only needs to pay off a few times in order produce impressive payouts after paying off the recovery from out of the money trades. With the long shot strategy, traders may just find themselves earning higher profits that is only available by entering riskier trades.

Protecting your account balance is what the long shot binary options strategy is all about because traders don’t need to shell out a fortune to earn impressive income. Traders who are prepared to risk entering trades with greater odds by implementing a ‘long shot’ strategy are provided with impressive opportunities to earn significantly higher profits than any other instrument of the same type. The term “slow and steady wins the race” applies very much to this strategy.

Mechanics of the Strategy

The long shot strategy can be deployed in any type of underlying asset. The idea is to purchase a contract with a predicted price that is way outside the strike price. Obviously, if the strike price of the underlying asset is further away, the less likely that the trade is to be successful. However, the good news is that even small investments can result to large profits should these trades end in the money. If so, the strategy would have been fruitful to the trader.

Any trader can execute the long shot strategy using any binary options broker. The objective of initiating trades that possess pre-determined target prices that are located levels away from their opening values is a basic feature that any binary options broker should provide. In fact, some brokers even have payout ratios that are directly proportional to the gap between the opening and target prices. This allows the trader to determine how much to invest and to expect.

Risk ratios are set up so that greater payout is given for larger differences because it is the nature of trading where risk dramatically increases the further away the target price is from its opening. Because the price will have a much lower chance of hitting its target at least once before expiration, the odds that a trade will finish ‘out-of-the-money rises exponentially. But then again, traders only need to generate a limited number of wins to record a substantial profit.

Technical and fundamental analysis should be performed with this strategy. As the most basic step, the trader must be able to determine the general direction that the asset price is currently moving in. After knowing the trend, determining whether the asset price will reach a predicted price level is a much different story. Binary options brokers are aware of its difficulty. That is why they are willing to offer high payout percentages should the prediction be correct.

When a trader uses the long shot strategy in trading binary options, he will notice that the strategy will result in more out of the money trades than in the money one. But because the long shot provides a higher payout, profit can be made even if the trader is successful in only one out of five times. Traders who are able to attain a 50% success rate using this strategy will likely gain impressive profits at the end of each month.

When to trade the Long Shot

The long shot strategy is best used whenever the prevailing market conditions are volatile exhibiting large price surges or spikes. It is most effective to use when traders detect that the market is in such conditions. As such, the trader should consider executing this tool after the release of major fundamental news releases that fail to match analysts’ expectations. When market sentiment does not match price levels, tendencies are that trends will prevail.

As the markets would not have properly priced-in such eventualities, traders will immediately have excited investors on their side. They will initiate rapid trading transactions in order to modify their investment portfolios in accordance with the new underlying trading conditions. Consequently, the markets will experience surges in volatility which are the ideal conditions for implementing the long shot strategy in their trades.

Any trader can instigate such a technique by first identifying a target level that price must hit at least once before expiration. The further this level is from the opening value of the new binary option, the larger the size of the payout ratio. More specifically, returns increase in direct proportion to the distance of the two levels. Many traders who patronize the ‘long shot’ strategy utilize technical analysis to help them determine their optimum target prices and expiry times.

Example

To illustrate how the long shot strategy works, imagine the following scenario. Say that the Bank of England has just informed the markets that it has just cut its benchmark interest rates in order to boost the struggling British economy. After analyzing the underlying motives behind this important decision, a trader deduces that the GBP/USD will plummet amid enhanced levels of volatility.

As such, the trader decides to initiate a long shot strategy. The trader then chooses GBP/USD, record the target price, the return ratio, and the quoted expiry time. As the trader has deduced that the GBP/USD will drop, he initiates a Put option that will enable him to implement the long shot strategy. Most binary options brokers allow traders to create ‘long-shots’ by using their ‘touch’ binary options. These options are available in Touch or No-touch options

After the preferences have been set, the target and opening prices of the new position will be displayed. The payouts for both ‘in-the-money’ and ‘out-of-the-money results’ should also be shown on the trading platform. The trader then puts in his investment and activates the new PUT binary option. Depending on the binary options broker, the platform should have its own indicator or notification system with regards to the trader’s ongoing trades.

Traders should know well to use a proven money strategy to assist in identifying the safest amount to wager that will not expose the account to an excessive level of risk. If there is no such facility available, then traders should limit their investment to a maximum of 2% of their equity. This gives them the opportunity to try again, just in case the first few trades end up out-of-the-money. Sound investment is always first in trading.

While the trade is going on, prominent details of the position, such as payout ratios, option type, and invested amount, will be shown. The current GBP/USD price will also be displayed. The trader can track the option using a graph or a similar tool provided by the binary options broker. Usually, when the color of a graph, is green then this indicates that the trade is currently ‘in-the-money’. Many brokers share the same configuration.

If the current price is in red, then the trader’s option is presently losing. The red horizontal line is normally utilized to identify the exact time that the option will expire. At expiration, the long shot strategy terminates. Imagine that as the price of the GBP/USD did decline and the target level was touched at least once before expiration, the trade did finish ‘in-the-money’ and the trader then collects a return as advised by the broker.

Alternatively, if the GBP/USD failed to strike the target level at least once before the expiry time elapsed, then the trade would have closed out-of-the-money, and lost the deposit. Brokers who provide a rebate could give traders some compensation. However, the secret to this strategy is to hold the position and try again. If the readings from the traders analysis are true, then he should be able to make a profit from the appropriate trades.

Learn more strategies here. Meanwhile, you can check out our list of top brokers so that you can start trading today.