Trading with Binary Options

Binary option is known as a type of option in which the payback depends upon predicting and comparing the price of a stock based on the market trend.

Paired alternative

Investopedia.com explains binary option as, “A type of option in which the payoff is structured to be either a fixed amount of compensation if the option expires in the money or nothing at all if the option expires out of the money.”Now, what exactly does it mean by the binary option expiring ‘in the money’ and the opposite of it. This is explained by a simple example, wherein say an individual trades shares for a company A at the current rate of $ 50 per share, with a specified or settled payoff of $ 500. Now, if the stock is trading at a price above $ 50 on the day of expiry, the trader gets the promised amount of $ 500. On the other hand, if the stock is trading below $ 50, there would be no payoff.

Gaining out of binary options

A binary option is called so because it comes with the two options of ‘call’ or ‘put’. A trader may chose to buy one of these depending on the market trend. He may chose to go for a call option if he thinks that the price of the stock would be higher than the current price at the time of expiry, whereas he may go for the put option if he thinks that the price of the stock will be lower than the current price. With this coupled benefit, one never has to actually deal with the physical aspect of the asset.

An interesting facet of these options is that with a negotiated percentage for payoff, one can always end up retrieving money. Here, the trader may fix the return percentage in the case of option expiring out of the money, which may be close to 5-15% and that would still yield some amount of the initial investment rather than losing it all.

What’s good?

Binary options are different from plain vanilla options and come with dual advantage. To begin with, the former would not require a hefty investment. Some amount of profit is unlike that of vanilla options. Having said that and referring to the aforesaid 15% assured return, binary option is a safe bet as it would not go down with all the money.

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