Exotic Options - Binary Options

Mondo Visione  Feb 13  Comment 
ASIC has today warned against dealing with an unlicensed binary option provider Opteck.com, cautioning all Australian retail investors about the risks of dealing with unlicensed binary options providers. A binary option is a financial product,...
Benzinga  Nov 25  Comment 
Options trading has become extremely popular among retail stock traders over the past decade. One new, controversial cousin of the traditional stock option contract has gotten a lot of attention in the past couple of years: binary...
Jutia Group  Nov 6  Comment 
By Craig Walters of WallStMavens.Com for Nadex                       Image: Traders have access to Nadex binary options contracts for metals including gold, silver, and copper. The binary...
Benzinga  Jun 18  Comment 
Many investors are curious about binary options; they hear everything from ‘it’s a great opportunity’ to ‘it’s only for the big risk takers’. Most traders know very little about binaries. Probably the best way is to differentiate...
Benzinga  Jun 10  Comment 
So lately, there has been a lot of talk about binary options ; they are a simple trade, it’s a yes or no, the trader is either right or wrong and it’s winner take all. Well, that’s some of the story, but what it really boils down to is...
Market Intelligence Center  May 20  Comment 
How to pick a winner. For the first part of this series, and the May trade ideas, click here. Trade 1 Rationale The “US 500 Index” is naturally the S&P 500. From the past 24 years of history we know that this index closed on the last trading...
Market Intelligence Center  May 12  Comment 
Binary Options: a Flash Primer A binary option is simply a way to speculate if the price of an asset is going to go up or down in the future. For example, if you believe the price of a share of the German automaker BMW is going up you could buy a...
Benzinga  Apr 16  Comment 
Thinking of binary options as a 'yes or no only' proposition is the top mistake binary option traders make. Binary options have become a hot new topic. Most often binary options are thought of as a simple yes or no contract. Either the market...
Benzinga  Apr 8  Comment 
Binary options are a growing trading instrument expanding rapidly around the globe. As they continue to grow in popularity, many people weigh in with their opinion. Like most things in the financial world, people are quick to give opinions...


This page is part of the Wikinvest Guide to Options. Related articles within this guide include:

Binary Options are options that pay either a fixed amount or nothing depending on whether or not a certain condition is fulfilled when the option expires. This is unlike a regular option whose payoff is dependent on the price of the underlying asset relative to its strike price. For example: A binary option on weather would pay out a fixed amount if the temperature exceeds a threshold.

Binary option are usually structured as European options -- i.e. the holder of the option is only paid if the underlying condition is reached upon maturity. However, there are American styled binary options which are automatically exercised (i.e. pays out) as soon as the price of the underlying asset equals the strike price.

The strike price for binary option is the main determinant of the pay out. For instance, a binary call option on oil with a strike price of $80 and payout of $100,000 would pay the holder $100,000 if the price of oil upon expiration is $80 or more.

Binary options are mainly traded over the counter, however, the CBOE offers binary options on S&P 500 and VIX which traded on an exchange. Option trading websites such as HedgeStreet have also made these options more accessible to retail investors. On the other hand, most casino games and bets with bookies are technically binary options. Many insurance contracts are also designed to be binary options.

Types of Binary Options

There are two popular types of binary options: cash-or-nothing options and asset-or-nothing options. With a cash-or-nothing option the holder is paid a fixed amount of money if the option is in-the-money upon expiration. An asset-or-nothing option pays the holder the value of the underlying asset if the option expires in-the-money.

No Touch Binary Option

No touch option enables traders to foretell whether an asset’s price stays above or below a certain level throughout the length of the contract. As soon as the asset’s price hits the specified level, the contract becomes worthless. If it still hasn’t touched that level at expiry, winnings are paid out.

Asset or Nothing

When traders buy a winning contract on Asset or Nothing options, they are given a unit of the asset, instead of a fixed amount of cash. Thus, the price of the asset at expiry determines the trader’s gain. The “asset or nothing” class is typically offered by non-traditional binary options brokers

Cash or Nothing Binary Options

This option pays out a previously agreed-upon price, as long as the price of the underlying asset is either above or below the strike price of the contract at expiration. The payout price and asset price are completely unrelated, in that winning traders get the same amount of cash whether the price is $1 or $100 into “in-the-money” territory.

One Touch Binary Option

One touch binary options are a type of option for traders who believe that the price of an underlying asset will exceed a certain level in the future but who are unsure about the sustainability of the higher price. This options are available to purchase on weekends, when markets are closed.

Boundary or Range Binary Option

The Boundary or Range binary options contract works by setting two levels on the contract. One is set 'above' the current market price and one is set 'below'. This contract is similar to the 'tunnel' trade in regular options trading where the payout is made if neither of the specified levels is 'touched' over the duration set on the contract.

See Also

Related Articles


Wikinvest © 2006, 2007, 2008, 2009, 2010, 2011, 2012. Use of this site is subject to express Terms of Service, Privacy Policy, and Disclaimer. By continuing past this page, you agree to abide by these terms. Any information provided by Wikinvest, including but not limited to company data, competitors, business analysis, market share, sales revenues and other operating metrics, earnings call analysis, conference call transcripts, industry information, or price targets should not be construed as research, trading tips or recommendations, or investment advice and is provided with no warrants as to its accuracy. Stock market data, including US and International equity symbols, stock quotes, share prices, earnings ratios, and other fundamental data is provided by data partners. Stock market quotes delayed at least 15 minutes for NASDAQ, 20 mins for NYSE and AMEX. Market data by Xignite. See data providers for more details. Company names, products, services and branding cited herein may be trademarks or registered trademarks of their respective owners. The use of trademarks or service marks of another is not a representation that the other is affiliated with, sponsors, is sponsored by, endorses, or is endorsed by Wikinvest.
Powered by MediaWiki