How to Manage Selling an Option Before Expiration

One of the best things about binary options trading is that it allows investors the opportunity of trading in any market conditions, and even if the market goes against the trader, they can still make the most of their trade by opting for early closure.
An early closure is a relatively recent feature which has been introduced by most binary options brokers which permits the investor to exit their option before its expiry time has been reached for a proportion of the initial investment.
This is useful if an investment appears to be going in the right direction to make a profit, however the trader is uncertain as to whether or not the existing trend will continue. In these circumstances, an investor will be able to use their early closure facility to close their option before the expiry time elapses and therefore receive a percentage of their investment as a return. This amount of this return depends on how much the broker is prepared to pay in order to purchase the option back.

Using Early Closure in the Event of Market Reversals

selling optionsNot only is the early closure facility useful when a trader is uncertain about the direction that the market is likely to imminently take, but it is also convenient when the market takes a sudden and unexpected turn. If the market reverses and turns on the investment made by the trader, turning a successful trade into a loss-making one, it is possible to use the early closure option in order to close out of the investment and still receive some of the original investment capital back. In this situation, an out of the money trade may result in large losses, perhaps around 85%, however when the investor chooses to close their option early, they may be able to restrict those losses to a much smaller figure, perhaps around 30% to 50%. Of course, these figures are dependent upon the broker being used and the market conditions at the time of the option being sold back to the broker.
Early closure is therefore an excellent way to limit risk when trading binary options and to minimise the amount of money which can be potentially lost in an investment which does not go according to plan. This can be an especially useful feature in the event of a natural disaster or some unexpected financial or economic global news release which causes major volatility within the financial markets. Whereas in the past, a trader had no alternative but to wait it out to see how much loss they would be likely to make on their trade, today, it is possible to close their option at a profitable position if something unexpected occurs in the economic situation.

What to Remember if Opting for Early Closure

The early closure facility should never be used to close trades arbitrarily. It is key to remember that if all traders used early closure regularly, there would be many fewer losses and therefore the broker would go out of business over time as they would have to absorb all of the losses made. Therefore there are some key rules to remember when using the early closure function,
There are some options which are unable to be closed before their expiry time. High Yield contracts for example are not permitted to be closed early. There are also some specific time periods within which an early closure cannot be executed. For example, the early closure facility may only be allowed once a trade has been open for a certain amount of time or within a time frame just before the expiry date. There are also some costs associated with early closure, meaning that the trader will be unable to receive a full payout if they close their option early.

Other educational articles

Recommended readings

How to Manage Selling an Option Before Expiration
5 (100%) 1 vote