Unit 2 · Level 3 · Event trading
Binary events: gaps have no mercy
Some events don't move price. They teleport it. An FDA verdict can gap a biotech ±50% overnight; a hot inflation print or a surprise rate decision can yank entire indexes in seconds; a court ruling lands whole. There is no path between the old price and the new one, which means there is nothing for a stop-loss to catch on the way down.
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What you get asked
What makes an event 'binary'?
Approved or rejected, hike or hold: the outcome space is lumpy, so price jumps rather than travels. Everything you know about managing trades mid-flight stops applying.
Why does position sizing SHRINK around binary events?
The 1% rule from the Trading course assumed your stop works. When it can't, the position size itself must absorb the worst case, so it shrinks.
Match the situation to its reality
Know which regime you're in before you size. Gap risk is a different sport from trend risk.
Across a binary gap your stop-loss fills at the ___ price, not at your chosen level.
A stop is an instruction to sell at the next opportunity. After a gap, that opportunity can be catastrophically far from your line in the sand.
The professional posture toward binary events is…
Skipping is a position too. Pros survive decades of binary events because each one was sized as a shrug, never as a story. 🐜
The rest of this unit
Expected moves, straddles and binary gaps: trading the calendar like a pro.