What types of binary options could be traded? Binary put and call (Up/Down) options as well as their vanilla cousins make profit when the price of the underlying asset increases or decreases respectively. They have a strike price, which is usually the opening price for a given period of time (e.g. every 5 or 20 minutes after 0:00 pm) or the quote at the time of purchase of the option. When you buy a binary call option and the price of the underlying asset is above the strike at maturity you receive predetermined payout (usually 100 points). If the price is below the strike at the expiry, you get nothing and actually lose the premium paid). When you buy a binary put option, you make profit when the price of the underlying asset is below its strike at maturity. A great advantage of this kind of options is that you need a price move of only a few pips to get much better risk/reward ratio, while your risk is limited to the amount of the premium paid. You get a kind of leverage.
One touch (OT) options give a payout that is a predetermined amount (usually 100 points) when a certain price level is touched by the price at any time prior to maturity. If this level is not touched the buyer loses the option premium. This type of binary options are very good for trading volatility. However, you must have in mind that the price reflects the probability of a price level to be reached. Therefore somehow you have to beat the statistics. For example, you can analyze the volatility of the underlying asset and open positions with binary options in both directions when sharp increase in volatility is expected. You can structure long strangle when the volatility is expected to rise or short strangle when it is expected to fall. Since there are binary options with different specifications (strike, expiry), you can use those that are close to maturity. In this case, the cost will be lower, because the time value of these options is lower. Therefore, if you have chosen the right time to open the position when you expect a sharp price move, you will benefit from the increase of the delta and vega of the option. This will give you an opportunity by closing part of the position to cover the amount of the premium paid, or even to guarantee some profit.
Another case when the one touch binary options can be used successfully, is the release of important economic data or statements by central bankers. Be aware, however, that all future events are reflected in the price of binary options and you still need to find a moment of surprise. You should not necessarily wait until the expiry and you can book partial profits after the initial reaction to the event. The prices of binary options can get valuable information on what volatility is expected and if there is any market direction. If the prices of call and put options, with strikes at equal distance from the current market levels, are different, perhaps traders have any expectations about the direction of the price move of the underlying asset.
Ladders are similar to the one touch option. For this type of binary options is important where the price of the underlying asset will be only at the expiry. They are like barriers of European type. Since the probability of this to happen is less than that the quotes to reach a certain level, Ladders are cheaper than the one touch options. They can also be used for volatility trading, but only if you expect a large directional price moves (after volatility contraction) and sustained break of a price level. Brokers have different specifications for Ladders and you should read carefully the rules.
While the OT binary options are used for trading when a breakout is expected, "No Touch" options (NT) are most appropriate when the market is expected to stay within certain price limits. This kind of option makes profit when a level is not touched before maturity and you lose the premium paid when the price level is touched. One such option may have two barriers and then it is called Double No Touch (DNT).
DNT structures are American type options, because if there is a payout or not is determined by the touch of one of the barriers. Some brokers offer binary options, which are called Tunnel or Range and work at the same principles as DNT structures, but with European barriers. The payout is determined at the expiry depending on whether the price of the underlying asset is within predefined price limits. The tunnels are cheaper than DNT options as there is lower probability the price to be above or below a level at maturity than just to touch it anytime during the life of the option. However, if you are sure, that strong price move or sustained break beyond price level could be expected, it is better to buy the cheaper option.