You will learn about the following concepts
- Introduction to double no-touch binary options
- How do they work
- How no-touch options differ from call/put options
- Examples
Introduction
Having explained how most of the other types of binary options work, we will now turn our attention toward double no-touch options. They are the exact opposite of double one-touch options. You again have two trigger levels, one above and one below the spot price, but here the price should not reach them, otherwise the option will be “out of the money”.
How do double no-touch binaries work?
When a person trades double no-touch binary options, he/she must select two price barriers, as well as a time period during which the trade will be active. Some brokers offer options with predefined trigger levels and expiry period.
In order for the option to expire “in the money”, the underlying price of the asset must not touch either one of the price barriers. If it does, the trade will close out of the money.
Why double no-touch options?
Double no-touch binary options are commonly purchased when traders are convinced that the market is about to consolidate in a trading range, which often comes after hitting a new swing high or low. These options are usually traded by more experienced traders, but in certain situations even beginners can take advantage of the trading opportunities they offer.
Example
Let us assume that gold spiked to a new high of $1 280.00 and consolidated at around $1 275.00 following a correction. The trader expects that the precious metal will probably hold around these levels at least for the next one hour, because, for example, there are no other major economic indicators due to be released today.
The trader decides that this is the right time to purchase a double no-touch option with an expiration time of one hour, and an upper and lower barriers at $1 281.00 and $1 269.00 per ounce, respectively. If the yellow metal fails to rise or fall to these set barriers within the next hour, and instead reaches for example a high of $1 278 and a low at $1 272, then the option will become “in the money”. Logically, touching any of the two trigger levels will render it “out of the money”.