Binary Options – The Week Ahead Greece in a Tough Spot

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Binary Options – The Week Ahead: Greece in a Tough Spot

26 November 2020

Signs of optimism have emerged for the debt ridden European economy even as talks over the U.S. fiscal cliff resume post thanksgiving. The U.S. equity markets were performing well last week, and the momentum might get some help from two key stock market deals this week. One would help avoid the U.S. fiscal cliff while the other looms as a dangerous threat wherein Greece might default on its massive debt.

The overall performance of the stock markets last week was quite impressive especially for Europe as the Stoxx 600 index managed to stay afloat despite political unrest. The same trend was seen in the U.S. as well with the stock markets doing well despite a shorter week thanks to Black Friday.

The U.S.

White House officials and the Congress are all set to resume talks on the fiscal cliff this week. President Barack Obama, on 18 th November, said that he was very confident about a new U.S. budget that would help avoid the fiscal cliff. The U.S. markets were performing really well last week despite the Thanksgiving holidays shortening the week. DJIA rose 3.3%, Nasdaq gained 4% and the S&P’s 500 climbed 3.6%.

Investors in the U.S. are currently narrowing their focus on latest reports for the week’s trading activities. Key reports to be released this week include the consumer confidence report and one on durable goods this Tuesday, the weekly jobless claims report on Thursday and the personal income and outlays along with the Chicago Purchasing Managers Index, which is set on Friday to end the week’s activities. The Federal Reserve’s Beige book is probably the most important event of the week and is set to release this Wednesday.

The U.S. Treasury will be auctioning USD35 billion 2-year notes this Tuesday, USD 35 billion 5-year securities on Wednesday and USD29 billion 7-year debt this Thursday. Standard and Poor’s Case-Shiller home price index for September is set to be released on Tuesday and the report is expected to display an increase for the 8 th month in a row. Wednesday will also see a new home sales report for the month of October and Thursday will see the October pending homes data. Both these reports are expected to indicate a stronger market.


While things are looking good in the U.S., signs of optimism emerge for Greece in the European Union. Olli Rehn, the European Union commissioner commented last Thursday that a deal on Greece was imminent as the ECB, IMF and the Eurozone finance ministers met once again on Friday.

Negotiations with Greece continue this week

The Greek finance minister said on Friday after meeting with the IMF’s managing director and the European Union Officials that he was confident that the IMF will ease early deficit targets that are imposed on the debt-stricken European nation. Such a move would help Greece obtain more funds and would probably avoid a default.

While Greece is running from pillar to post to avoid defaulting on its debts, the Stoxx Europe 600 climbed 4% for the week. This was the first time the Index rose consistently for 5 days in a row since July 2020. The stocks spiked even after talks on the next seven-year budget for the European region did not go down well and despite a failed two-day meeting last week. As a result, Herman Van Rompuy, President of the European Council made a decision on abandoning the summit on 2020-20 seven year budget that is estimated to be around one trillion Euros, and would instead try to reach a compromise regarding the same early in 2020.

Europe was in for a surprise last Friday as the Ifo Institute’s Business Climate Index climbed unexpectedly, featuring its first rise after 8 months. This played an important role in the Euro finishing the week on a high, climbing 1.8% against USD and 3.2% against JPY.

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The European calendar too is full of life this week with several noteworthy events taking place every day. The Italian and German consumer confidence data will be heralding the week. The second estimate of the third quarter GDP data and the business investment data is due on Tuesday. Wednesday is packed with the ONS underemployed workers report and the Eurozone money supply data. The BOE financial stability report, Mortgage approvals, Money supply data and the CBI distributive trades survey are due on Thursday. The week ends with Eurozone unemployment rate and the GfK consumer confidence survey.

The overall impression seems a bit shaky as far as Europe is considered. The good run of the stock markets may continue this week too but keep a wary eye on the statistics and reports while trading binary options this week.

The Week Ahead

15 October 2020

The leaders of the European Union are under immense pressure as the time draws closer to the summit later this week. The Euro, which registered gains last week, is all set to quickly go bearish as the gap widens between the long speeches of the EU leaders and the stark reality. The credit degradation by Standard and Poor’s 500 last week has made things very difficult for Spain, which is already on a very rocky terrain. Chances for a bailout request from Spain are highly likely anytime now.

The Euro however might witness a rally as the EU leaders begin the summit but the question is will the economy sustain under the weight of a severe recession or will it crumble like a cookie under the impassive policies of the EU?

The two-day summit

The European Union has decided to hold a summit later this week, on Thursday and Friday at Brussels addressing a number of issues that are plaguing Europe at present. The pressure on Madrid for an early bailout is immense and it is likely to be the centre of focus during the summit. Athens, which is already living on a bailout, would be looking forward to a deal with troika to enable its next instalment of loan tranche. Some of the other agendas include a common budget for the European Union and some proposals for the banking union.

Another important aspect that needs to be addressed is breaking the link between banking and sovereign debts. Earlier this June, the EU was in unison to recapitalize the banking sector through the European Stability Mechanism (ESM). This would ensure that supporting the banking sector would not affect a country’s credit ratings. All the EU countries including the ‘eurosceptics’ also agreed to sign the deal. But the ‘eurosceptics’ were quick in saying that the legacy debt was the responsibility of the borrowing nations. A decision regarding this will reflect deeply on Spain and also the Euro zone economy.

You may want to open your call options as the two-day summit begins. The Euro is likely to go bullish at least for a while during the summit.

Spanish bond auctions

Madrid’s worst fear is that they might be rejected when they make a plea for a bailout. This would cause a lot of humiliation to the Spanish administration and also trigger a brand new blitz of market pressure. There is also another looming fear about Germany blocking any attempts to the Spanish aid and imposing stringent norms before Spain can obtain any funds. Chances are that Spain will hold back for some time before pleading for the bailout.

Thursday’s Spanish bond auction is likely to draw the attention of many investors as the markets worldwide are getting extremely impatient with Spain’s delaying tactics. The impact however is likely to be a little subdued in view of the Summit which is bound to grab all the attention.

Also the German ZEW survey, which is due tomorrow, might just cause some stir in the markets, despite the fact that the data might be credibly obscured by political considerations.

The Spanish Bond auctions and the German ZEW both are the key events this week. You might just be tempted to open your call options but it would do you good to stay away from these two as they might move the markets either way. However, if Spain pleads for an early bailout, the markets are likely to be delighted and it would be the most opportune time to open up your call options.

Asia, U.S. and the U.K.

There is some important Chinese data due to be released this week. The latest consumer inflation will be made public today and a quarterly GDP data later this Thursday. If the data does not meet market expectations and comes below forecast, the situation is likely to cause great fears about the country’s future economic accomplishments.

The U.S. sales report is also due today. This week will also see the Philadelphia Fed index and the New York manufacturing PMI released later on Thursday. These surveys saw some weak readings in September. However, this did not explicate into any downturn for the national PMI reading. The impact from the surveys this week is likely to be slightly damped as the investors are already viewing the data with much scepticism.

In the U.K. the latest consumer inflation data will be released tomorrow. The inflation rate, which fell steeply earlier this year, has flattened out now. The report is likely to have an impact on the Bank of England and Sterling. The unemployment report is also due to be released later this Wednesday along with the latest MPC minutes. A rise in the unemployment aid count would have a negative impact on the Sterling. Also, there is uneasiness in the markets owing to the stickiness of inflation; any rise in the rate of inflation is a cause for severe concern.

The government borrowing data and the retail sales data are also going to be released later this week on 19th October and 18th October respectively.

The Asian market might receive a boost if the Chinese consumer inflation data meets or exceeds market expectations. It would be a good time to open your call options if the events turn out favourably.

Binary Options Vs. Forex

Binary options trading has long existed over-the-counter, only experiencing a massive growth spurt in the last few years.

Now, approximately 90 companies (including those who white label their products) offer some sort of binary options trading service.

So okay, it’s a growing industry… But why should you involve yourself in it?

There are many advantages and disadvantages to both binary options and spot forex.

Max Risk

One of the great things about binary options trading is that you always know the exact maximum gain or loss in advance.

The trader controls the premium at risk to enter the binary option trade, and that is the only amount that can absolutely be lost.

Most binary option brokers even allow you to cut your max loss by “folding” your trades ahead of expiration after certain types of trade conditions have been met.

In contrast, with spot forex, even with a stop loss order set, you cannot be 100% certain that you will lose only the pre-calculated amount that you risked.

While improbable, there’s always the chance that certain issues may affect your final max risk like slippage, lack of liquidity to execute a stop order at the desired price, a broker’s trading platform goes down, etc.

Trade Management Flexibility and Maximizing Reward

Aside from High/Low options, many of the binary option plays are only available at certain times of the day or week, and most times the strike prices are set by the broker.

With spot forex, you are able to enter limit orders for any price or execute a market order at any time during open market hours.

In terms of exiting open trades, some binary options brokers allow you to close options trades early, but usually only after a predetermined amount of time has pass after the option trade has opened and before it closes.

And as mentioned before, the value that is returned to the trader is based on whether the market is in-the-money or out-of-the-money and of course, with a piece going to the broker.

In spot forex, you can close your trade at any time (except on weekends with most brokers). Even if it’s one second into the trade, you can get out and book profits or reduce losses.

Finally, if you think there’s going to be a long trend and you want to maximize your profit on it by holding it as long as possible, you can do so in the spot market using scaling in and trailing stop techniques.

With a binary option, the expiration date and cap on profits limits you; you’re out of the trade as soon as you close or the option expires.

Depending on your risk and trade management preferences, either trading instrument can be good or bad depending on how much time you want to spend in front of your trading platform, how active you want to be, or what you expect the market may do.

Transaction Costs

In binary options trading, there are no additional transaction costs other than what is normally factored into the final payout.

In spot forex, the transaction cost comes in the form of a spread, a commission, or both. We’ve already discussed this in a previous chapter, but feel free to revisit the lesson and read up on it again.

Trade Choices

Another great thing about binary options trading is that you aren’t limited to just currency pairs like with most retail forex brokers.

While currency pairs are the most common assets you can trade, with some binary options brokers, you may also have the opportunity to trade your ideas on a limited number of individual stocks, stock indices, and even commodities.

Volatility Risk

Surprise volatility is not usually an issue in binary options trading. Any trade you take can weather the volatility caused by certain events.

The max risk is still set, but so is the max reward.

In spot forex, however, sharp swings can affect the value of a position greatly and very quickly, which makes the additional task of setting up proper risk management processes very important.

Trader Error

The margin for error when entering a trade is very small in binary options trading.

This is due to the fact there are only two actions to take with binary options: open and close.

There are no limit orders to keep track of, or to close or adjust. In spot forex, an inattentive trader may forget to place exit and/or adjustment orders, potentially creating a loss greater than he/she intends.

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