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Binary bet volatility

As we have already seen, the most common type of binary bet that we will use in virtually all our binary betting trading is the floating binary bet, which changes throughout the course of the event as the probabilities of the event happening, ebb and flow with the underlying market. As we approach the expiry of the bet, then this will of course move towards the extremes of the binary range, and reflect success or failure of the binary bet with 0 or 100. However, it is important to realise that the binary option being quoted will become extremely volatile at certain points, and you need to be aware of these regions which I have highlighted for you below as follows :

Binary bet – below 20

Below 20 your binary bet will move very little as the likely outcome of the bet is trending towards 0, so there is little space left for it to move, and will only do so if there is a sudden and dramatic swing in then underlying market. Any bet is this range will therefore have little volatility and tend to trade in a very tight range of binary option prices.

Binary bet – 20 to 35

Between 20 and 35 your binary bet will start to pick up in speed as we begin to move towards the mid point of the binary betting range. Volatility in the binary option spread will increase as a result.

Binary bet – 35 to 65

Between 35 and 65 you can expect to see the binary option spread being quoted move very quickly indeed, with only a small movement in the underlying financial instrument or market, sending the binary option first one way and then the other. As the underlying instrument approaches the level of the bet being quoted then the binary option will settle at 50, but this will only be temporary with any further moves being signified with big swings in either direction.

Binary bet – 65 – 80

Between 65 and 80 the volatility in the binary option will decrease and begin to slow down once again

Binary bet – above 80

Above 80, then the binary bet will move slowly once again as the likely outcome here is a bet which is settling at 100, or a win bet, and once again has little room to move as a result.

The above volatility in all binary options is partly as a result of the way that binary bets are priced and quoted, but is also partly as a result that the binary bet itself has a limited life until expiry. For those of you who have traded in options of any kind will know, the biggest asset for anyone selling an option is the erosion of time, whilst for those buyers of options it is the biggest liability. In options, as in binary bets, time is a ‘wasting asset’, and will affect the speed at which an option premium on the exchange ( or value of the option) declines. In the binary betting market, the time aspect starts to take effect as the binary bet moves towards expiry, with the volatility reducing as a result, as the chance of a big move decreases and the bet therefore tends towards the extremes of the bet, either to win at 100 or to lose at 0.

This is an important concept to grasp in binary betting as options can be closed at any time, either to take a profit early, or to reduce a loss further, so you will need to make these decisions from time to time, rather than simply letting your binary bet expire at 0 or 100. If we take the first of this which is to take a profit early, if your binary bet is well above 80, then the probability is good that the bet will close as a win, as time erosion will help the bet settle towards 100. If you are on the losing side of the bet and it is currently trading around 20, then the probability is that this bet will close to 0, and therefore it would probably pay to cut short your losses as a result, as the chances of any recovery are unlikely! These are the decisions you will need to make each and very day when trading binary options.