Competitor Relative Value (CRV) Binary Trading Strategy

bourse-usIn this article, we will take a look at the Competitor Relative Value (CRV) binary trading strategy. The strategy aims to take advantage of the price fluctuations of 2 different companies which are correlated and operating within the same industry.

A good example will be the share prices of smartphone manufacturers like Apple (Iphones series) and Samsung (Galaxy Series) or oil giants like Exxon and British Petroleum (BP). The CRV trading strategy is relatively easy to understand but proper implementation of this strategy requires that you have a firm grasp of the equity market and an in-depth understanding of the relative performances of the competing firms that you are interested in trading in. In other words, this is a strategy for those traders with some trading experiences and not novices.

The Mechanics of the CRV Strategy

To understand how the CRV strategy works, let us use the example of the iPhone manufacturer Apple announcing the launching of a new line up of smartphones. With Apple’s track record of turning a large profit for each of its product that it had launched previously, it is natural to expect investors to start buying up Apple’s shares and hence pushing its price up. In such a scenario, it will be ideal and profitable for a trader to purchase a call binary option for Apple’s stock right after the announcement of the product launch.

Apple vs Samsung

At the same time, it is logical to expect that Apple’s new product line will be stealing the market shares of competing firms such as Samsung. In order to profit from the announcement from both ends, a trader should purchase a put binary options for Samsung’s stock simultaneously when buying a call option for Apple’s stock.

It should be noted that the both the call and put options must contain the same parameters in terms of expiry time and invested amount. Executed properly, the CRV strategy will allow a trader to earn double profits while minimizing the trading risk.

While we can appreciate the fact that the CRV binary trading has the ability to return a good profit consistently, nevertheless, its effectiveness is dependent on the trader possessing the proper experience and skill sets in analyzing the relevant markets. Without any knowledge of the performance histories of the companies in question and a good understanding of the industry background which these companies are involved in, traders who trying to implement this strategy will merely be gambling their money away.

Leave a Reply