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How to choose the right expiration date for a binary option? The concept and expiration dates of options.

Greetings, guests and subscribers! Life is full of paradoxes. Take this example: what more information available on the Internet, the more difficult it is to find it there.

By the way, this is the most popular instrument among clients of the Moscow Exchange. In 2016, 25-30 thousand traders worked with him monthly. Once a tool is selected, the screen displays full information about currently traded options on this instrument.

These lists are grouped by expiration dates. When you click on a specific date, you get all options for that date.

Another popular instrument on the MICEX is futures on (). On January 26, 2017, trading of weekly options on it was launched. These options expire every Thursday. Conveniently, weekly options are not traded on the expiration dates of monthly options.

How options expire

Let's consider an example of buying a put option on some futures.

Suppose that at the time of purchase the option cost 10 rubles, and the strike price was 100 rubles. This means that the breakeven point is at the level of 90 rubles. At any spot price below 90 rubles, the option buyer makes a profit (see chart). The difference between the strike and spot prices is called variation margin.

The whole process can be described step by step with the following simplified diagram:

The option premium is paid. The buyer (trader) has a current loss of 10 rubles
During option expiration, the spot price is 80 rubles
The futures is delivered at the strike price of the option equal to 100 rubles
Since the futures were purchased at 100 rubles, and the spot price is 80 rubles, the variation margin will be 20 rubles. Minus the option premium (10 rubles), the net profit will be 10 rubles
The futures guarantee is blocked on the trader's account, and the trader becomes the owner of the open futures position

Very often, closer to the expiration time, the option price is actively growing and it is more profitable for the buyer to sell the option without waiting for its execution. By the way, as statistics show, more than half of buyers do just that.

Firstly, there is no guarantee that the price of an asset will not go into the loss zone, and secondly, beginners (and not only them) sometimes find themselves in difficult situation, when a losing futures position is opened with high leverage.

In addition, the volatility of the option price can significantly exceed the asset, which makes the option an independent trading instrument.

By protecting his interests, the option seller tries to hedge risks. If a put option is sold, the lower the price of the asset as expiration approaches, the more likely receiving a loss from the seller. Therefore, for hedging purposes, the seller may open a short position in the underlying asset.

Accordingly, the seller of the call option has opposing interests and buys the asset.

The conflict between these interests leads to sharp price fluctuations just before expiration.

Accordingly, after expiration, the number of players in the market and open positions in the underlying asset decreases sharply, which can lead to problems with controlling open positions in a “thin” market. Therefore, novice options traders are advised not to wait for expiration if possible.

However, there is one small loophole for the case when the loss upon option expiration is already obvious, but there is a high probability of a trend change. You can exchange an expiring option for another option that has a later expiration time.

This mechanism is called rollover. roll-over– roll). Of course, everything costs money, but sometimes it is more profitable to wait.

Small addition

In binary options, expiration time means something completely different than in stock options. First of all, the very concept of an option there means that the price will be higher or lower than the current one. There is another option when the price touches a certain level or is considered to be in a certain interval.

The player looks at the price chart of the instrument (it can be generated programmatically!) and his task is to make a forecast for its further behavior.

Expiration time means when the condition will be verified. To make everything “like people”, in binary options there is also the possibility of a rollover, but taking into account the already too high fee for losing, it has no practical meaning.

And in conclusion - a little intrigue. In December 2016, call options on Brent oil futures for delivery in December 2018 were in high demand on the London ICE Exchange. The price specified in the contract was $100 per barrel!

Predict further development The situation with oil is very difficult, and buying an option is great way hedge the risk.

Afterword

It is impossible to teach what professionals know in one short article, but this is not required. For general idea enough in simple language reveal the essence of basic concepts.

(from the English expiration - end, completion, expiration) - the process of completing the circulation of derivatives contracts (futures and options) on the exchange. Expiration is actually the date when obligations under futures and options are fulfilled (i.e., the delivery of an asset and/or mutual settlements between the parties to the transaction took place).

Futures contracts traded on the exchange have standardized execution (expiration) dates.

Expiration of RTS index futures

So, for example, it is executed 4 times a year, commodity futures on the CME are executed every month.
Expiration dates are set in the specifications of futures contracts.

At the time of expiration, there is a struggle for their income between sellers and buyers of options. And in this struggle there are many questions:

1) the volume of the derivatives market and its proportionality to the stock market
2) distribution of assets of market participants
3) pressure from market makers

Therefore, market volatility increases during the expiration period, and end result depends on which group wins.
When expiration reaches its minimum

Futures contracts traded on the exchange have standardized execution (expiration) dates.

Expiration of RTS index futures

So, for example, it is executed 4 times a year, commodity futures on the CME are executed every month.
Expiration dates are set in the specifications of futures contracts.

At the time of expiration, there is a struggle for their income between sellers and buyers of options. And in this struggle there are many questions:

1) the volume of the derivatives market and its proportionality to the stock market
2) distribution of assets of market participants
3) pressure from market makers

Therefore, market volatility increases during the expiration period, and the final result depends on which group wins.
When expiration reaches its minimum

There are no trifles in binary options trading. For successful trading There are many factors to consider. Of course, market analysis and strategy are important. But it is also worthwhile to correctly determine the expiration date, since the final result often depends on this.

If you have just started learning the basics of binary options and do not yet know what expiration is, do not skip the next paragraph.

In fact, there is nothing scary or complicated about this term. Expiration is the end of the previously specified contract period. Upon its expiration, or during (depending on the type of option), the trader receives a profit if the agreed conditions are met. Or loses the investment if the forecast turns out to be incorrect.

What expirations can you trade in binary options?

Before determining which expiration date is right for you, you should understand what options generally exist based on the transaction time.

Turbo options

Options are quite popular among beginners, as they allow you to make a profit every 60 seconds. However experienced traders they try to avoid them for the reason that trading at such expiration is almost unpredictable and the risks increase several times. But it is possible to trade turbo options with constant profit, but only a few do it. Such speculators are called scalpers, and their trading strategy is “Scalping,” which may require sufficient knowledge and experience to master.

Short term options

These options surpass all other types in popularity. Trading from 5 minutes to 2-3 hours is common among traders of all levels. There are several reasons for this:

This expiration period allows sufficient quantity transactions per day;
Transactions from 5 minutes can be analyzed. Moreover, the higher the timeframe, the greater the likelihood of a correct forecast;
Ability to use indicators. Of course, for minute transactions it is also possible to apply indicators, however, they are unlikely to show reliable information.

Long-term options

Options until the end of the week or month are used less often in binary options, since you have to wait quite a long time for possible profits. However, in some situations such trading will be completely justified. But more on that a little later.

All transactions are accompanied by risks. But, if you carefully analyze the asset before concluding a transaction, you can be almost sure of a positive outcome.

However, each option is analyzed differently. For example, The easiest way to predict an option is to expire at the end of the day, since exchanges are more predictable before closing. But at the beginning of the day, it is better to protect yourself from buying options, since at this moment there is practically no information about the state of the market.

Hourly and daily options are the most stable after long-term trades. However, the latter are not popular, since many traders, especially beginners, find it psychologically difficult to prepare for the analysis of such a long expiration.

Short-term options are the most effective. After all, profits can be accrued every few minutes. By combining this with skillful analysis and an effective strategy, you can get a fairly decent percentage of successful transactions.

However, short-term trades also have one main drawback, which not everyone can cope with. The ability to buy options so frequently encourages traders to make erratic trades. As a result, he succumbs to excitement, and binary options become a platform not for trading, but for a game that resembles roulette.

Selecting expiration by type of analysis

Choose optimal time expiration can also be done by type of analysis.

If trading is carried out using candlestick combinations (at a trend change or reversal, etc.), then usually the optimal expiration will be 2-3 candles. That is, if each timeframe is 5 minutes, the trade time should be 10-15 minutes;
If your main strategy is based on drawing support and resistance lines on the chart, while trading on a rebound from them, the expiration period should be 3-4 candles;
But when trading on a breakdown of the line, you should enter into transactions with expiration up to 10 candles;
Trend trading is one of the most popular methods among traders. Typically, in such cases, you should buy an option with an expiration of up to 30 candles. Although it is not necessary to always adhere to of this rule. Some transactions may turn out to be profitable even with a significantly shorter period;
When trading on news, a wide variety of expirations can be used. For example, if news on annual report any bank, the expiration period can reach a month. But when any top news is released, for example, the publication of volume industrial production a certain country, a transaction can be opened even for a few minutes.

Choosing expiration for a beginner

Trading with expiration up to 5 minutes is increased risk. Accordingly, no matter how much newcomers want to increase their capital in in a matter of minutes, this is not recommended. Otherwise, instead of a rapid increase in income, you may encounter an even faster loss.

Of course, options with weekly or even monthly expiration are the most stable. But carry out independent analysis A beginner is unlikely to succeed for such a period.

Based on this, it becomes obvious that the best option for a novice speculator the expiration time will be from 15 minutes to several hours.

Once you gain experience in trading, such questions will not arise. The expiration time will become narrower technical issue, to which you will answer intuitively.

Greetings to all trading lovers. Today we will discuss very important topic in the context of the binary options market – what is expiration time? I would like to immediately note in advance that this issue is incredibly important and without a competent choice of expiration time it is impossible to successfully trade in the market.

It is generally accepted that the field of binary options is much simpler, but even in this field there are vital points that cannot be avoided. Without false modesty, I can say that the expiration time and its choice is just such a moment.

Many traders seem to have an interesting and promising system, but the wrong choice of expiration completely destroys the entire potential of the trading system.

What is the optimal expiration time for binary options?

In simple terms, the expiration time is the period of completion of the contract. That is, this is the time after which, depending on the type of contract, the current transaction in the market must be closed.

In general, expiration times can vary, from a few ticks up to a year. Naturally, a lot here will depend specifically on your trading system. If you are used to trading more conservatively, then the expiration time will be appropriate.

That is, if you are used to investing your funds, then the expiration time should clearly be from one to several months.

If you are conducting intraday trading, then the option time will be limited to several hours.

There are also very aggressive traders who trade at very low intervals. In this case, the transaction can only be active for a few minutes. Again, everything specifically will depend on you, your system and preferences.

What expiration time should I choose?

To begin with, I would like to note that novice traders, exposed to excitement and a thirst for quick profit, use short-term options with an expiration time of no more than 5 minutes. What can we say here?

This approach is more like some kind of stupid and incomprehensible roulette. Yes, a trader can certain time be lucky, and his deposit will grow at a steady pace.

But the moment will definitely come when a series of profits will give way to losses.

Experienced traders never trade at such extremely low expiration dates. They are well aware that this approach will not yield anything good in the long run. They recommend that it is necessary to enter into options for at least 15 minutes. Moreover, ideally consider the option expiration date to be one hour or more!

What is the ideal expiration time? Unfortunately, there is no clear and affirmative answer to this question, since there is simply no ideal expiration time and there cannot be one.

The market is highly volatile, and no one can know in advance where and how the price will go. All our actions are financial market come down to banal forecasting. You will have to select the expiration time yourself, that is, purely by trial and error; you will have to independently calculate the execution time that suits you specifically.

Look

There is simply no other way, so choose trading system, open a demo account and select, experiment. I want to point out one important point, the chosen performance time should be emotionally appropriate for you.

That is, if you have opened an option and look into the terminal every two minutes, hypnotizing the price, then it means that you are using an expiration time that is uncomfortable for you, and it makes sense to experiment further.

Over time, you will be able to choose for yourself the right time execution. But I can give you a couple of tips! For example, if your trading strategy is trendy, that is, it makes sense to increase the expiration time. For what?

The point is that the price can for a long time hang around in one place, and if the expiration time was chosen incorrectly, then naturally the option will close with a loss, and may immediately move towards your original order, but you will already be out of the market.

That is, it turns out that you clearly decided on the direction of the market, but over the expiration time you did not guess, and ultimately you will receive a loss. I would like to note that the expiration time and its correct choice is a priority for you! This will directly determine whether you can trade options profitably.