How do touch options work?
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In the field of binary options, there are different types of options that are particularly suitable for certain market conditions. A trader who wants to be profitable must be familiar with different types of options and be ready when a certain market situation arises. Touch options have a special mode of operation. There are different types of touch options that are suitable for different situations due to their distinctive characteristics.
These touch options are available
There are mainly two different types of touch options, which are similar in structure but are aimed at the occurrence of different events. Most brokers mainly offer these touch options:
- The no-touch option: The buyer assumes that the price will not rise above a certain level
- The one-touch option: The buyer assumes that the price will touch a certain level.
With the no-touch option, the buyer must ensure that the price does not touch the selected level. It does not matter how close the price is to the price level at the end of the term. The only thing that matters is that the level has not touched the price level within the term. The level of the return depends on how narrow the corridor is within which the price may move. As a rule, the narrower the corridor, the higher the yield.
The one-touch option, on the other hand, is only about touching the price level. The price does not have to be quoted above the price level at the end of the term; it is completely sufficient if the price has touched the level during the term. How high the return is for the individual options depends on how far the target is from the price at the time of purchase. The return on a high-yield option can be 500 per cent.
When is the use of touch options particularly profitable?
A successful trader must be able to recognise when to use a particular option. If he masters both technical and fundamental analysis, as well as the use of different options at the right time, there is not much standing in the way of success. However, recognising when to choose a particular option is usually not so easy.
The no-touch option, for example, is particularly suitable for a market that is currently consolidating. Consolidation is the extreme form of a ranging market. This market condition is defined by the fact that there is no clear trend. A trending market is defined by the fact that it either has rising highs and rising lows or, in the case of a downtrend, falling highs and falling lows. If these conditions are not met and the market tends to move sideways, it is referred to as a ranging market. If a suitable trend corridor has already occurred, the trader can select a no-touch option with a price level as the price target that lies outside the corridor.
Consolidation takes place when there is no longer a high trading volume. This is usually the case after the regular stock exchanges close. However, not all underlying assets can be selected if a no-touch option is to take place during a consolidation. It is important that the asset in question is also traded outside regular trading hours. Shares and bonds, for example, are traded via the stock exchanges. This means that they cannot be purchased outside the opening hours of the stock exchange on which the share is traded. Foreign exchange and commodities, on the other hand, are traded 24 hours a day during the week. This means that options can also be purchased late at night when consolidation is most likely.
The one-touch option, on the other hand, is suitable for a particularly volatile market. A market is volatile if it is subject to high fluctuations. Day traders primarily look for volatile markets because this is where the greatest profits can be made. So if the trader anticipates that there will be a huge price increase in the near future, he can purchase a one-touch option with a suitable spread. If the price jumps above or touches the corresponding target for even a short time, the trader can look forward to a substantial return.
Another example of an excellent application of a one-touch option is the publication of news. On numerous sites, such as Investing.com, traders can view the economic calendar free of charge. The most important market data, which has an enormous influence on the market trend, is published here. Especially after the publication of important data, such as the labour market data from the USA, all currencies react violently with the US dollar. Traders can take advantage of this sometimes enormous price jump. The market reacts particularly strongly when market data is published that goes against market expectations. If the trader reacts quickly enough, he can conclude a high-yield option in his favour.
Conclusion
The use of touch options requires experience. However, combined with the right expertise and a fast response time, enormous returns can be generated.
Simone Aescher is the founder and operator of the successful crypto blog aescher-ai.ch.
After studying business administration at the Frankfurt School of Finance, she gained over 5 years of professional experience in the financial sector. However, her passion has always been the financial markets and investments.
In 2019, Simone Aescher finally turned her hobby into a career and founded her blog. She shares her in-depth knowledge of shares, ETFs, cryptocurrencies and much more.
As an active trader, Simone is constantly testing new brokers, robo advisors and trading apps. With her honest product reviews, she helps her readers to separate the wheat from the chaff.
With her academic background, many years of experience and practical expertise as an investor, Simone Aescher combines the ideal prerequisites for competently analysing and evaluating the financial markets.