Binary options trading is largely about short-term price movements where you are predicting the way a price will go by a set time. Since prices can alter quickly and are influenced by news and announcements, you have to keep your eye on what’s happening.

Earnings Release

A typical event that can cause a stock price to change is a company’s earnings release. If results are better than expected, the price will rise. If they fall short of what has been forecast, the stock price will go down.

Immediately prior to an official earnings release, trading in the securities is stopped to prevent any perceived unfairness. Before that time, traders will take a position based on whether they expect the results to be good or bad. The hope is that they will make a profit when the published results prove they are right.

This is very similar to what a binary options trader does except that there is no purchase of the stock, instead staking a set amount on a prediction of the way the stock will move. So it is an opportunity for a binary options trader to exploit – providing that all research is done thoroughly.

Rumors and News

There is an old saying that applies here: ‘buy on the rumor, sell on the news’. In this case, the rumor is what the market expects the results to be and the news is the actual publication of the results. Whether you’re effectively buying or selling, of course, depends on what the rumor and the news are saying.

If the rumor is that earnings will be rather better than expected, place a call option as you expect the price to rise. If traders expect results to be below forecast, place a call option in the belief the price will fall. You can follow this up once the announcement is made, by immediately placing an opposite trade to the previous one if you have been successful. This is because a spike in price is often followed by a dip as traders cash in their short-term positions.