You will learn about the following concepts
- Definition of double one-touch options
- Two predetermined barrier levels
- Growing in popularity among traders/li>
Double one-touch binary options are preferred by many traders as they allow you to profit even if you arent able to accurately predict the prices direction of movement. They work in a similar fashion to one-touch binary options with one considerable difference – here you have two trigger levels, one above and one below the spot price, and hitting each one will render the option “in the money”.
Traders who use this type of options have the right to determine the position of both triggers and expiration time (some brokers however offer options with pre-set values). In order for the option to become profitable, either one of the triggers must be breached before the expiry. If this doesn’t happen within this time frame, the investment is lost.
As we said, this type of option is useful for traders who think that the assets price will undergo a huge change, but they arent quite sure if the direction will be positive or negative. It is most suitable for extended periods of market consolidation, which are typically followed by a strong breakout. Check out the example below for further clarity.
Let’s say you have chosen to trade the EUR/USD currency pair and the current exchange rate is 1.3000. You believe that the upcoming key economic data from the US, say nonfram payrolls, which are expected to come at a high level, will significantly strengthen the dollar against the euro. However, you also fear that if the reading registers worse than expected, this might push the dollar down as much as 100 pips.
In order to capitalize on the expected strong move and also protect yourself from the probability of a downbeat payrolls reading, you can choose a double one-touch option. You can set an upper trigger at 1.3100 and a lower trigger at 1.2900. This way, if the data come either better- or worse-than-expected, which usually incites large volume and active trading, you stand a significant chance of being “in the money”.
However, if a reading overall in line with expectations causes overall muted trading lacking strong fluctuations, neither of your trigger levels might be reached, which will render your option “out of the money”.