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While most traders opt for the call and put variants or even the touch options when trading Binary Options, advanced traders in particular also use a third type of trading known as “Range” or alternatively “Boundary”. This type of trading is essentially different from the other two types of trading, so that here too, certain types of traders are addressed.
Range trading is particularly suitable, for example, for people who, when speculating with Binary Options, do not want to commit themselves to a specific price that the underlying asset must reach in any case.
How does range trading work?
With range trading, the trader does not have to decide on a price or a certain price trend, but rather a certain corridor is defined within which the price of the underlying asset may move. The trader must then decide whether he wants to speculate that the price will remain within this range or whether the price will “breakthrough” the defined corridor. Thus, in range trading, a price range is defined, which is done by an upper limit and a lower limit.
If the trader has speculated correctly, returns between 70-90 percent can be achieved in range trading as well. In addition, this type of trading is also often offered in high-yield mode, so that significantly higher returns are possible. Range trading is generally considered to be riskier than trading with simple options because the trader not only has to decide whether the price rises or falls, but also have to assess whether the price remains within or outside a range. There are two types of range options, namely inside options and outside options.
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The Inside Options
As can be seen from the name “Inside”, with these inside options, the trader speculates that the price of the underlying asset will move within a predefined range until the option expires. Of course, the trader must also decide beforehand whether the range should be above or below the current price, i.e. whether the price will rise or fall. If both conditions are fulfilled at the expiration of the binary option, i.e. the price of the underlying asset is higher than at the time of purchase, for example, and if the price also remains within the corridor, the trader makes a profit.
The Outside Options
With outside options, the trader decides that the underlying asset will break through a certain range, i.e. will not move within the corridor. Here again, it is the exercise date of the option that is decisive, not the price trend in the meantime. The trader has won if the price at maturity is no longer within the defined range. While trading with inside options is more suitable for “quieter” markets, because the prices there are generally not very volatile, trading with outside options is more suitable for volatile markets/underlyings, because the range should naturally be broken through as far as possible.
Conclusion: Range Options are suitable for some strategies
Range Options are interesting for some trading strategies but often you will not get the high yield like with classic Binary Options. If the market is in a range, for example, it is a good way to use a range option because you increase your chance to win.
This can be in situations where the volatility or market movements are very low. Such situations are at night or in the midday. If you find a good Range Option where the range is in the actual price, you can go for it.
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