Roll Over and Close Now Options for Binary Options Traders
Extend, or rollover, and close now, or early closure, are tools that are being offered by more and more binary options brokers. In order to use them effectively it is important to know what they are and how they work. Rollover is a feature that allows you to increase, or extend, the time to expiration. Close now is another useful tool that works in an opposite but complimentary way to rollover. It allows you to close a position early, sometimes for a profit. Together, these two features bring binary options trading to a new level, one that is closer in nature to standard options than ever before.
What Is Rollover?
The basic function of rollover and extend features is to increase the amount of time your option has until expiration. When you use this feature you are exchanging your option for an option that has more time to expiration. In order to do this you will have to put up some more premium. The amount will vary from broker to broker but is usually a percentage (maybe 30%) of the initial investment.
When To Use Rollover
You want to use rollover when your basic analysis is correct but you need more time for the trade to unfold. If your trade is in the money or looks like it will easily close in the money then adding additional money and time risk to your trade is unnecessary and a waste of money. Sometimes it’s hard to know when to use it, acting hasty could cost you more money than you need to spend, which is why Patience is a Trader’s Virtue that should never be underestimated.
When Not To Use Rollover
You do not want to use rollover when your trades turn against you. Let’s say the market drops on unexpected news and your trade moves out of the money then you wait to close it, hoping and praying that it comes back. When it doesn’t you give the trade more time and spend more money. This is not a good decision. You do not want to throw good money after bad, at this point it is better to cut your losses and get out with what you can. One way to avoid this type of set up is to follow the news.
What Is Close Now?
Close Now is a great feature of binary options trading and one that I think even more useful than the rollover feature. The close now feature allows you to close your options positions at any time prior to the options expiration. What this means is that you can take profits or cut losses well before the option expires. This can help you limit your risk to time exposure and free up your capital to reinvest in other trades. For more on risk management read our article, The Top 5 Ways to Reduce Your Risk in Binary Options Trading.
When To Use Close Now
Close now is pretty easy to use. Binary platforms with the feature display a buy now price for any options you own. The price of the options fluctuates based on the price of the underlying and the time to expiration. You can use close now to prevent losses or to capture gains but will lose some of your premium and profits. If the asset you are trading has made the move you expected well before expiry of the option use close now to capture that profit and move on to the next trade. If the asset has moved against you, use close to now to cut your losses and get back the capital you can, before you lose it all.
When Not To Use Close Now
After giving it some thought, I can not think of a time when you really should not use close now. If getting out of a trade is right for you then it’s right. Cutting losses and taking profits are two of the pillars of my personal risk management strategies and I can’t speak a bad word about them. Close now is the tool that allows binary options traders to do both of those things.
My Final Word
These are two great tools. They enhance binary option trading and make it more dynamic. The ability to extend time, cut losses and capture profits bring more credibility to binary options. When properly used they can be very profitable and are important tools in the trading arsenal. However, they both have one big drawback; the window of opportunity for using these tools varies from platform to platform so you will need to be sure and choose a binary options broker that has them, and know how they work on the platform.