Binary Option Trade With Call and Put - Hedge Risk While Retaining High Return Potential

A carefully executed binary option trade with a call and put can substantially mitigate the risks associated with these high flying, fast paced contracts, and traders stand to benefit from this strategy in this rapidly expanding market.

Like most hedging related strategies, a well placed binary option trade with call and put positions can have a dramatic impact on the risk reward profile of your net holding. Consider buying the up side of the contract and making a $200 contract with a strike price at $10 per share. Let's say we are early in the hour (binaries expire hourly or at the end of the day depending on the terms) and your trade is decently in the money. Maybe the stock has gone up to $10.75 or $11.00 a share. Do you really want to hold that position for the remainder of the hour knowing all too well the market can turn with just the wrong set of news or sudden investor apathy? What can you do to lock in at least some of your gains in a supposedly "all or nothing" contract?

The answer is either a full or partial hedge making a binary option trade with a call and put - dollar and expiration matched. Fully matching your call and put positions will minimize your risk, while partially hedging (leaving some part of the trade open) can give the trader some added weight to one side if he or she thinks that side of the trade is fairly sure. It is not too complicated to understand this sort of hedging strategy but sometimes concrete numbers can help.