There are three different types of UDOs available for trading. Each type differs from the others in regards to return potential, level of risk and other details. In this article, we are going to give you a short description of each type and explain how to choose the one that suits your needs best. Different types of trades can have better results with different types of options.
Choosing the right type of option is of utmost importance and should be taken as seriously as technical analysis and choosing an asset. Every step in UDOs trading is important for the overall profitability of your trading.
When trading with a range type of option, your goal is to predict whether the value of the underlying asset will be inside a certain range, as the name suggests. It`s as simple as it sounds. Let`s take the EUR – USD pair for example. Imagine a situation where you are given the range 1.08 – 1.12 and you choose a timeframe of one week. So what you need to do is decide whether in one week the exchange rate of the pair will be inside or outside of this range.
This type is a somewhat newer addition to UDOs trading and it shares some similarities with Forex. It`s also a good choice for beginners, because it`s very simple and straightforward.
Simply put, the touch part refers to the underlying asset “touching” or reaching a certain agreed upon price, within a certain time frame. It doesn`t really have to stay at that level or go beyond it, it simply has to reach it, even if briefly. If you chose that the asset will touch the level and it really touches it, then it`s your win. Simple as that. Also, the return percentage is usually close to 80 percent, which is very good.
Above/Below is the most widely spread and traded type nowadays. Same as with other option types you will have to predict how the value of an asset will change over time. More specifically, as the name implies, you have to predict if the value of the underlying asset will be higher or lower than a certain level by the time the option expires. (In case you`re not familiar with the expiration rate, we suggest that you read the article about it)
Let`s illustrate with an example. Let`s say you want to trade with Microsoft stock and you choose an expiration time of 30 minutes. All you need to do is decide whether you think the value of the Microsoft stock will be higher or lower than the target price in half an hour.
Imagine that the value of Microsoft`s stock is $45 and the target price for a 30 minute option is $45.10. Then you analyze Microsoft`s performance and other relevant data and decide that the price will go higher than $45.10. So what you need to do is purchase a Call option, which means that you think the price will go higher than the target price. Of course, if you think that the option will expire lower than the target price of $45.10, you need to go for a Put option. That`s all there is to it. One of the great things about UDOs trading is that you are aware of the possible profit and loss before engaging in the trade, so there are no unexpected surprises and you can plan accordingly.