A one touch option is basically a binary option which has a payout profile in which the traders can make considerable returns based on their initial investment. The return profile of one touch option can be as low as 65% return on trader’s initial investment and in few cases it can be as high as 500% return on his initial investment. A one touch option is an option that pays the trader if the underlying asset touches or exceeds the predetermined barrier by a specific time. This post explains how the trader can use one touch option trading formula and his leisure time on the weekend to expand his investment portfolio and bulk up his earnings.
The power to choose is the spirit of one touch option trading. The trader gets to set this level, select the payout and the expiration time. Akin to typical binary options, one touch options also have only two possible outcomes: either the barrier is touched or exceeded and the trader receives the full payout or the barrier is not met and the trader loses the trade and receives nothing. Thus one touch options trading offer the traders very ‘worthwhile payouts’, the moment the underlying asset’s price exceeds or touches a predetermined barrier. This is the major advantage of one touch option formula, as it pays 300-380% in returns if the option meets the barrier. This is a momentous jump from the weekly return range of 65-71%. Even the novice traders who are not willing to invest high can take benefit of one touch options as they are priced at $100. One-touch options provide a special weekend 350% returns on EUR/USD currency pair and 380% return on underlying assets like FTSE 100.
Another benefit of one touch option trading formula is that the price of an option only has to touch or exceed the barrier once during its life span which means it is not necessary that the price should exceed the barrier at the time of expiry. This makes this formula of one touch option trading particularly helpful in conditions where the trader thinks the price of an asset will exceed a certain barrier in the future but he is doubtful as to whether it will be sustained. Moreover, one touch options can be cashed at any point during their life instead of being cashed only at the time of expiry, making them an outstanding hedging formula for Forex spot positions or stock option strategies.
Before investing in a one touch option, a trader should verify if this technique of trading is in line with his risk profile. A trader interested in trading one touch options can employ a couple of methods to verify if one touch options are moderately priced given the price of an underlying asset.
The major component to pricing binary options besides the price of an underlying asset is the implied volatility. Implied volatility is actually how much the market deems an underlying asset’s price will move during the lifetime of an option on an annualized basis. This component is used in standard Black Scholes pricing model to price binary options.