Implications of Historic Commodity Plunge

One of the best ways to see the fundamental forces at work was the severe market price action during the week of May 2. We saw a historic sell-off in the commodity markets. It also offers a good example of the power of binary option out-of-the-money trading strategies. Here is what happened. It was almost a perfect storm of markets and sentiment cascading and colliding. Oil declined more during this week than it did during the financial collapse in September 2008. Silver sold off 27 percent in one day. The CRB index declined by 7 percent (Figure 4.27). While hindsight is always perfect, what are the lessons of this event that can be applied to a binary option trading strategy? This kind of sell-off reminds us all to always expect the unexpected. The strategies that best apply to big sell-offs are breakout binary plays and deep out-of-the-money plays. This points to a mixed strategy where a portion of the trades put on are always deep out-of-the-money plays mixed with ATM and in-the-money plays. When a big move happens the deep out-of-the-money plays will catch the moves.