Getting Fancy With the Ladder Option
by Girvan Lambert
Binary options trading is supposed to be simple, right? You either get it right or you don't...you either get paid or you don't...that's why they're called "binary" options to begin with. While this apparent simplicity is often touted as an advantage, there are traders out there for whom it just won't do. Complicating simple matters is often done in an attempt to add another dimension to something that may become boring over time, or - in the case of trading, where real money profits/losses are involved - to mitigate risks and to create edges for the traders. This is where the Ladder Option comes into the picture. The ladder option is essentially a binary options contract, which sets several price targets instead of just one. As the price-targets are reached one after the other, the trader picks up his payouts. The payouts themselves are split among the price-targets. With that in mind, it's easy to see how a trader could pick up some money off a trade like this, or even all the money if all his price-targets are met. What exactly are the advantages of these ladder options? Well, according to some, they at least guarantee some sort of a payout provided the asset price moves in the right direction, although there aren't any guarantees in this respect if you really think about it, and the trader can indeed lose all the money invested if none of the targets are met.
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What is there to know about ladder option? There are two types of ladder-based trades one can make: a call ladder (which is the bullish variant of the trade, obviously) and a put ladder (the bearish variant). Several prize-targets are set either above the market price (in the case of the call ladder) or below it (in the case of the put ladder). Every one of the trades features an expiry time. Ladder options are currently only available on a few select platforms, so you won't be able to find them everywhere. Once the asset price hits one of the set price-targets, the payout associated with that target is guaranteed.
The objective of the ladder trade is obvious: to hit as many of the set price targets as possible before expiry, thusly compounding the payout.
What's the best strategy for trading ladder options? Given the nature of the whole setup, it should be fairly obvious: support and resistance levels, with a daily pivot thrown into the mix fit this type of trade like a glove.
The strategy is aiming to capitalize on the general daily trend of asset prices breaching several such pivot points. Obviously, the biggest challenge here is to establish the bearish or bullish nature of the daily market bias, something which can be accomplished more or less efficiently in several different ways. Other than that, all the trader has to do is to have the automatic pivot point calculator draw up the support and resistance levels for him. The target prices for the trade will obviously be represented by some of these pivot points. Exactly which ones they should be is made pretty clear by the current market price and the direction of the daily market bias.
The expiry on these trades should be generous: 24 hours is a good starting point in this respect. That should give the asset price enough time to move through the required price-targets.
As always, one is best off putting the strategy to the test through a demo account before beginning to trade for real money through it.