Trading Stocks using Binary Options

One of the great things about binary options is how accessible nearly any type of financial market can become for anyone with an Internet connection. I can count the number of binary trades I’ve taken on stocks with one hand, but I decided to try my hand at it today since my trading hours went from 9AM-12PM EST. I have looked at equities charts in the past and always liked how relatively smooth the price action was (i.e., not much ebb and flow in volume). I watched two charts at the same time –  McDonalds (MCD) and Apple (AAPL). I didn’t really like what I was seeing from MCD so I ended up taking trades on just AAPL alone.

I’ve embedded a screenshot of MCD’s five-minute chart below covering both the morning and early afternoon of its trading. The only thing I really had going for me was the resistance level that was created between the daily pivot level and resistance 1 at 95.50. Although that line of resistance held for over thirty minutes, I did not take put options there due to the 95.57 resistance 1 level that was directly overhead. The equities markets apparently seemed open to gains that morning, and combined with the resistance 1 level just 0.07 above, I felt it was likely that the 95.50 level would not hold. On top of that, I was trading on StockPair using their 30-minute expiry, so if I’m going to make a trade I need to have at least a half-hour’s worth of confidence that the level will hold.

The AAPL chart was a bit more encouraging, though. I ended up getting into a trade fifteen minutes after the opening bell (9:30AM EST for New York). The market opened at 500.85, so naturally it was already sitting on a big psychological support level (500.00). Price immediately rose and went through the daily pivot level and resistance 1 on the opening five-minute candle. It finally hit a bit of resistance at the resistance 2 level of 505.24.

Once it hit 505.24 I decided to zoom in a bit on the price action by going all the way down to the one-minute chart. On this time compression I received two consecutive candles that touched and rejected the resistance 2 level, so on the third consecutive touch I entered a put option on the 9:46 candle. I had to wait a full thirty minutes for this trade to close up, but it went in my favor the entire time outside of the first few minutes. This trade won by just under one point (1.00).

My second trade came on a re-touch once again at the 505.24 resistance 2 level. From the five-minute chart, I received a rejection of 505.24 on the 10:25 candle, which set up a put option on the 10:30 candle. This trade closed out on the 11:00 one-minute candle, and ended up losing by one-tenth of a point (0.10). This was a bit unfortunate considering it had been in my favor for a large majority of the thirty minutes in which it was active. My general idea was correct, but the trade ultimately didn’t work out.

At this point, I was not looking to take a third trade at 505.24, as price had retraced very weakly off the level after the second trade. As I like to emphasize frequently, I always try to avoid potential trade set-ups if a touch of a level comes after a weak retracement. In the case of a potential put option set-up, a weak retracement off a resistance level usually means that the buyers are likely to take control and cause a breach of the resistance on its next test.

Once price breached resistance 2 for good, I began targeting resistance 3 (507.13) for put options. Resistance 2 was still a good target for call options, if price decided to retrace back down. But resistance 3 was breached on the 11:30 candle before forming a general line of resistance along the 508.11 level. I decided not to take any put options here, however, due to the prevailing uptrend in addition to the fact that the resistance 3 line was just one point below the 508.11 level. It wound up being a good decision to avoid the trade based on a thirty-minute expiration.

I ended up trading around 12PM EST. A drop in volatility occurs around that time period, as that’s essentially lunchtime for New York where, of course, a very large amount of the trading volume is dervied from. I went 1/2 ITM overall, so it wasn’t a net profitable day, but it was enjoyable to try some binary trades on stocks given I rarely get the chance.

As always, let me know if you ever have questions or comments and I will get back to you as soon as I possibly can.

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