You will learn about the following concepts
- Introduction to no-touch binary options
- When to use them?
- How no-touch options differ from call/put options/li>
In the previous article of our tutorial, we made you familiar with one-touch binary options. To summarize, the trader chooses an asset and selects the price that the asset is supposed to reach, as well as a specific time frame. If the asset’s price touches the predicted price at least once before the time expires, then the option becomes “in the money” and the trader will collect his/her profit. Now let us take a look at no-touch options.
What Are No Touch Options?
No touch options are the exact opposite of one-touch options. Basically, when you use this instrument, you’re betting your money on the assumption that the asset’s price will not reach a certain level before the time expires. No-touch options are similar to the traditional call/put options, in that you have only two possible outcomes and your profits and losses are fixed.
When to Use No Touch Options?
Every binary options trader has certain preferences – some of them prefer the simpler call/put options, while others stick to the higher-yielding, but also riskier, touch/no touch binaries. Many traders also use a certain combination of options to build up a more diversified portfolio.
Moreover, apart from the preferences over pure mechanics or payout ratios, the more advanced traders select different binary options, according to changes in market conditions.
We said in the previous article that one-touch options are best purchased when the trader is convinced that the underlying assets price will spike up or down after a period of consolidation, but he is not sure whether it wont retrace back.
In this case, call/put binary options would be a bad choice due to the high chance of the asset reversing its move before the expiry and failing to become “in the money” when it is due.
No-touch options, on the other hand, are commonly purchased at times when the market is expected to consolidate in a narrow trading range – most often this happens after the price has reached a new high or low. Thus, the trader bets that the trading session will be essentially quiet.
Let us assume that you want to purchase a no-touch option on Crude oil. The current price of this asset is $93.45 and the broker offers you a no touch option with a price of $93.60. If oil stays below $93.60 for the specified time period, the option will expire “in the money” and the trader will receive his/her profit. However, if the price rises and hits $93.70 for example, then the option will become “out of the money”, scoring a loss for the trader.
No-touch binary options offer higher return the closer the trigger is. Thus, if oil is trading at $95.00 per barrel, a trigger price of $95.50 will pay out more money than a trigger at $96.00, because the chance of hitting the closer target is higher (the risk for the option to become “out-of-the-money” is greater).