One individual, with the power of his conviction, came into the market and bought GBP10,000 of out of the money calls, due to expire worthless at the end of the month of January 1989 should the market not rally above these levels. He cleared GBP3.75 million off the able by the end of January, originating from his GBP10,000 investment as the market closed the month above 2050, bringing his out of the money call options comfortably into the money.In this case, as the options has gone significantly into the money, and where therefore more profitable than a binary option would have been (even if readily available at the time). This is because the binary option goes to full value as its odds are fixed by being just one point in the money. Whereas the traded option theoretically has unlimited profit potential.Although the ultimate profit potential of the normal traded-option exceed that of the binary option, where the payout is fixed, the binary option is frequently more profitable as it overcomes the factor of having to go that far into the money to become profitable to overcome the original time decay element of the original options premium. Long term binary bets can be very easily user defined at the Binary website.Let us take a real life example. This is known on the Binary website as a Bull/Bear expiry bet. On October 5th 2005, expecting an imminent market fall, I took out a Bear expiry contract on the FTSE index for EUR 166.70. Here is the actual transaction listed below taken from the statement page on the Binary webpage for my account:The value of the index at the time of the transaction was around 5450. If by October 21st the market was below the STRIKE price of 5220, Binary would have to pay me out EUR 5000. If however, the market was trading above 5220 only 230 points above the value of the market at that time then Binary would keep my EUR166.70.The market continued to fall, and on October 19th, just 2 days before the option was due to expire the cash FTSE fell below 5220 for the first time during the bet. As the market fell Binary continue to make two way prices on the bet. By the time the market had gone 30 points past the strike price, the bet was worth around EUR 2,900. The bet was jumping around by several hundred euros with just 10 points moves in the market. After all, if the market were to rally by a few points, my EUR 2700 gain would evaporate instantly. Therefore, I ran a risk of losing the entire stake by holding on. So, with 17 times my money in the bag if I took profit, I decided to close the position. Here is the statement text cut and pasted from my Binary account:The story above is 100 true, and such opportunities are a daily occurrence in the world of options. However, for every winner such as this one has to ask oneself how many times there are losers. Unless you can really predict significant moves in the market and, in my opinion using market geometry such as Gann and Elliot Wave theory, it is sometimes possible that it can be very foolish to punt on such trades.To put the above story in perspective I also took out additional bets on the CAC, Dow Jones and DAX markets at the same time as the FTSE - for a possible redemption of EUR 30,000. In some cases the other bets expired worthless or marginally in profit, as the markets did not fall far enough to bring home the big one. However, due to the exceptional gearing possible with these kinds of bets, I could afford to take five bets and make on only one bet to still be heavily in profit.Also notice that I came out of the bet early. Even though in this case I could have made the full EUR 5000 by waiting the extra two days, my past experience as an options broker and a trader made me take off the table what was offered before it simply disappeared. NEVER expect to take it all, and NEVER regret not taking it all off the table. That is your greed talking. The number of times I have seen option profits of thousands evaporate and expire totally worthless the very next day (both in my own account and others) because the position was not closed when the money was there to be taken is too painful to even think about.An alternative strategy of course is to take a portion of the profit off the table, at the very least gaining back your initial capital, and then let the rest of the position run. This strategy is common in futures and stock trading and is just as valid in binary betting and options trading.Let us use an example of what binarybets calls their Wall St Index, but in reality is identical to the Dow 30 Cash Index. A standardized bet called Wall St to finish UP starts trading each evening shortly after the market closed which runs through to the close the following evening. Based on the Dow Jones 30 Index cash price the binary option has a maximum redemption value of 100 and a minimum of zero depending on whether the market closes up or down on the previous close. As the bet or binary option nears expiry it can become extremely volatile if the market is trading near to the close in the last hour of trading.The market in the option fluctuates live all day long and traders can come in and out of the binary bet. If, however, in the final hour the Dow is 10 - 20 points lower OR higher on the day the option will often trade below 20 or even below 10 or above 80 or even 90 conversely.However, most traders will be happy with doubling their money in just a few minutes. When the market is oversold in the evening and in the last two hours of trading gains of two or three times ones money is not unusual. For example the market is down, say 50 points and the bet to close up on the day is trading at say 13. A rally of twenty points, although it may peter out, will allow you to sell back that bet to binarybet in the high twenties or mid-thirties. So even though the bet will ultimately still expire worthless, as the market is not net up on the day, one nevertheless can trade out of the bet for several hundred percent profit. Such opportunities were virtually not existent until recently and yet so few people appear to be grasping them fully.One bet to avoid is when the market is heavily down and the bet is very cheap.
