Risk free trading meaning trading without risk sounds too good to be true. In fact, trading without risk is the holy grail of day trading.
Forever elusive, the holy grail of risk free trades is yours for the taking if you know where to look. Luckily, I'm going to show you how to get em and how to find em.
Risk Free Trading Meaning: A Point of Clarification
- I need to make something clear upfront: No type of market trading is ever 100% risk free. Typically, when we use the term risk free, we're referring to binary options trading. And all it really means that your risk is reduced as much as possible. Without further ado, let's dive in to the risk free trading meaning!
1. How to Make a Trade as Risk Free as Possible?
You can trade binary options. Put very simply, "Binary options" means refers to a trade where the outcome is a 'binary' Yes/No answer.
These options will also pay you a fixed amount if they win (known as "in the money"). However, your premium is lost if the binary trade loses.
In case you didn't know, binary options share all of the same underlying factors as your traditional options. Similarly, the same inputs are used to determine its value when pricing them.
The only way in which binary options differ from standard options is in their pay-out structure on expiry.
2. One Risk Free Binary Options Trading Strategy
To minimize your risk as much as possible, traders buy two options in option + mode in different directions. At the same time, they then sell one option in order to benefit from each.
You are making a profit on the properly trending trade. Ideally, if you call it right, you minimize your losses, and the overall trade is profitable.
Does it happen all the time? No, but it does happen a lot of the time and certainly gives you a chance to book a little bit of profit.
That is why trading this way is called risk free trading. Robinhood option trading could be of use here.
3. How to Execute a Risk Free Binary Options Trade Step by Step
- Buy a call option and then immediately placing a put option after it.
- Wait for a clear trend direction.
- Early closure. Quickly sell the option that is not trending in the current price direction. The quicker you do this, the less you will lose. By quickly selling off the option that isn't trending will typically keep your losses less than 25%.
- Wait as long as possible for your second option to expire.
So how can you achieve maximum profit on your risk free binary options trade? Let the trade reach its expiration.
4. What to Do When Price Goes Against You?
Alternatively, you also have a chance to sell both options in profit. Let's imagine a scenario where price takes a sharp decline.
While waiting for the market to turn around, the trader sells a "put" option at a profit. Finally, once the market turns, they profit on the second "call" option.
What Is Risk Free Trading?
- A simulated trading account is as risk free as you can get with trading. You're not using your own money. Some people hate not having skin in the game. However, it's a great way to perfect your trading style before you go live. As a result, you're not blowing up your trading account.
1. The Drawback of Risk Free Trading With Options
One of the major drawbacks of attempting to trade options risk free is the constant tracking of expiration dates. You need to be on the ball because you must to sell the option just before it expires.
2. An Alternate Risk Free Trading Approach With Options: The Risk Neutral Butterfly Options Spread
A butterfly option spread is a risk-neutral options strategy with limited downside risk. We accomplish this by combining bull and bear call spreads when the underlying price isn't moving much.
What makes this strategy so popular is it's risk free exposure. Even though your profit potential is somewhat limited, you can sleep at night. Beyond even that, it's one of the few options strategies that work well in a small account.
3. How to Construct a Butterfly Options Spread
Step 1: Buy a contract with a 45-55 day expiration slightly below the money in an equity market ETF like SPY.
Step 2: Buy a second contract if the price of the underlying trades higher. Doing so will stretch out the expiration break even lines. And if prices continue to go up, you can roll the first butterfly up.
Your overall goal is to keep the market trapped under the expiration break even lines. While at the same time not incurring too large of a loss. And as you know, the name of the game is to limit your loss and protect your account.
Because the risk/reward ratio is relatively favorable, this strategy more forgiving to the new trader. Another benefit of trading this options strategy is that the position will typically make money on the downside due to skew. I won't go into too much detail here, but we use skew to describe the implied volatility of options at different strikes.
4. Bullish Bears Have Options Trading Classes
Trading options don't need to be complicated, and that is why we put together this simple, step by step course. We will teach you, in easy to understand language options trading strategies that you, yes you, can easily learn and apply.
Our videos will are more simplified and focused than you'll see in other options trading courses.
What's more, options aren't typically day traded, but based on the strategies you will learn, you can make short-term options trades for both day and swing trading.
Our course introduces traders to the options market and teaches reliable options trading strategies where risk and reward are fixed on each trade. We focus on:
- assessing volatility,
- picking the best options to trade,
- building your trading plan,
- placing orders,
- managing risk,
- managing trades,
- considering different profit/loss scenarios,
- part-time trading day trading and swing trading options.
In fact, the free videos in our options trading course will save you a lot of money compared to purchasing an introductory options trading courses elsewhere.
Save your money with Bullish Bears!
My Parting Words of Wisdom
So while risk free trading has until now been elusive, Bullish Bears has created a tremendous new opportunity for new traders with their free courses and trade room access. Remember, it always pays to be smart.