Yesterday, I briefly mentioned in chat that we should be getting a B-wave overnight consolidation and C-wave down towards 2142ES. While that was my expectation, while it was happening, it appeared something else was in play — as the crazy up and down in the morning that broke below 2146 and then rebounded 9 points made me think the c-wave was done.
But it turns out my initial expectation was more accurate – as we eventually did go down towards 2142 — but it went even further than that into 2136ES — basically the same region low that hit during the presidential debate last Monday and the bottoms seen during the Deutsche bank crisis.
From there, we rebounded into 2144ES.
Also, during this non-trending market environment, I’ve been looking into alternate strategies — binary options.
The problem with regular options or even ES futures — is I need a trending move to make any money. If the market keeps reversing directions, I can’t make money. Additionally, I take on risk that I don’t want. With options, I would have to hold overnight to catch any trending moves — and lately, overnight moves have been spastic.
But with binary options, I am able to make a bet that the market will close at 4:15pm above or below a certain level. The bid ask spread is quite wide — and it’s an all or nothing game, but I can avoid overnight risk and only bet on a specific time of the day — the last 2 or 3 hours of the trading day.
So I did a test with a my first binary trade today – when ES was at 2140 – betting that the close would be above 2140 and a separate bet that it would expire above 2143. The second bet above 2143 barely made it, but it worked out.
Of course, had the ES closed below 2143 but above 2140, I would have made $100 and lost $140 — for a net loss of $40.
If ES closed below 2140, I would have lost my principal of $245.
So it’s really important that you are right on the bet. But the good thing is – after the completion of a c-wave down (as we had today) — all we need is a small bounce into the close — without the need for a 20 or 30+ point bounce in order to make money. Whether it reverses that bounce or follows through does not matter for the binary option trade.
I think binary options could be a potential alternative strategy to traditional options in market environments like the one we had these last two months – where there is no trend.
Here are the benefits as I see:
The problem with regular options – is I could see a potential set up -and place the bet — but I never know whether the market will follow through or not. All I can see is that the setup is there and hope there is follow through.
For example, last week GDX had a setup, but it did not follow through – and we ended up getting stopped out a few days later for a small loss. Luckily we got stopped out during the day. If that gapped down, I would not have a chance to stop out at a small loss.
But had I used a binary option, all I needed was for GDX to follow through into the close of that same day — and I would have made money. I wouldn’t care whether GDX follows through the next day or two — I only care about those last few hours going into the close. This way, the trade is exposed to market risk only for a few hours – and can potentially be more effective in making money from the analysis that I do — which identifies potential setups but never knows whether the market will actually follow through.
I’m still experimenting with binary options – and I think they only work well in the last hour or two of the day but they seem promising as an alternative way of risking small amounts without requiring the market to trend for 20+ pts (which it has not been doing the last few months).
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