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The binary option



  The description


  Is usual it is a question of, whether there will be a stock quote of an underlying asset above (or more low) certain level. The defined benefit is produced in case of an option prize, irrespective of degree of change of the price (how much it above or more low).


Binary options allow to know precisely the size of payment and possible risks to the contract conclusion that provides possibility easier to manage a considerable quantity of trading operations.


For simplicity of calculations is usual is accepted that the performed option has the price 100, not performed - 0. If the option at the price of 10 at its execution (the underlying asset price was above the stipulated level at the appointed time) the option price is considered equal 100 has been purchased and this sum is received by the trader. If the option was not performed, its price 0 and the trader receives nothing. In some trading platforms at option non-execution return to 15 % of the means spent for its purchasing is possible. If the option was on price boost/fall, and was closed exactly at the reference price to the trader the initial sum or its part (depends on contract conditions) can come back.


Depending on a current market situation the price of purchasing/sale of the binary option can change largely.


Instead of purchasing actually the assets traders can use binary options for income acquisition on the fact of correct determination of a direction in which the assets price will move. Thus, it is enough to predict only two variants - growth of the price for the chosen assets (Call-option) or lowering of the price for the assets (Put an option). If for the chosen time interval the forecast appears successful and the price for the assets will be at the stipulated level or it is better than it, the trader gets the fixed profit.


Originally the binary option was considered exotic and had no wide secondary market. Therefore is usual it could not be resold to other person. In May, 2008 American stock exchange (AMEX) and Chicago board options exchange  have begun regular trade in binary options, and in June, 2008 standardised these contracts that allows them to have now the continuous stock exchange quotation.


At the moment, by the end of 2015, there was a great number of brokers which offer trade in binary options under a bit different scheme, than the above-stated stock exchanges. In this connection, traders prior to the beginning of any auctions should familiarise with conditions on which they buy binary options.




 The basic types of binary options


   Call \Put-options - the direction of movement of the price concerning the price at the moment of option purchasing is predicted. If it is expected that the price will grow - the Call-option is bought. If it is expected price reductions - the Put-option is bought.


One Touch\No Touch-options - achievement by certain level (One Touch) or not achievement it (No Touch) till the moment expiration is predicted. After achievement by the set level the further direction of movement is not important.


In \Out-options - the corridor in which the price till the moment expiration (In-option) or a price exit for limits of a corridor (Out-option) will move is predicted.



 Features for Europe and America


   In the European practice check of the price with set in an option occurs in option closing date. In the American variant check can occur constantly, that is option execution can occur at any time from the moment of purchasing of an option before date of its closing.



 Features of binary options


   The managed risk - the basic feature of binary options consists that is known to the trader, how many he can lose or win on any of options to the transaction conclusion.


Availability - traders buy the contract, instead of the assets that allows to receive the income of the predicted movement of the price more to quantity of dealers which in other case could not break a barrier of heavy prices. For example, instead of purchasing of 20 stocks for the sum of 1000 US dollars alternatively it is possible to spend 20 dollars for purchasing of 2 binary Call-options (examples see more low).


Profitableness - this indicator can repeatedly exceed profitableness of placing of the similar sums of original purchase of assets as profitableness does not depend on a final price difference, and is more likely connected with change of a direction of movement of the price for the assets.


Simplicity - as the size of payments under binary options depends basically on a direction of change of the price of the assets, and not so is connected with a price difference for profit earning it is required less than the detailed information on the assets. It does trade in binary options accessible to less skilled traders.



 Examples of binary options


 Examples of trade in binary options:


       Purchasing of an option for excess of price level. At cost of one share of company of Apple of 50 US dollars, it is required not less than 1000 US dollars for prize acquisition in 20 stocks. If share price raises to 55 US dollars the income will constitute 100 US dollars (20 stocks x 5 US dollars) at 10 % of profitableness. The income can have and other values, depending on price fluctuation. If the price adverse at the trader will be - to close a choice at a loss or to wait price growth. Alternatively it is possible to purchase 2 binary Call-options at the price of 10 dollars with a condition of achievement of stocks of Apple of the price of 55 dollars over the weekend. The price of the performed option will be equal to 100 dollars. If the price really reaches 55 dollars or will be above, the trader will receive 200 dollars (100 x 2) at costs of 20 dollars, the income will constitute 180 dollars, profitableness - 900 %. If the price does not reach the specified level it loses 20 dollars paid for an option.

Purchasing of an option for price boost from current level. Believing that by the end of day of the stock of Microsoft will cost more expensive, than at present, the trader buys a binary Call-option for closing price above flowing for 10 US dollars with the possible award of 17,10 dollars (profitableness of 71 % from the enclosed means). If by the end of day of the stock of Microsoft will really rise in price, the trader will receive 17,10 US dollars (profit 7,10 dollars). If the stock value decreases, the trader will lose the enclosed means.

Sale of an option for level excess. In midday of euro against US dollar (EUR/USD) lags behind closing price of previous day (the price at 20:00 on the London time) on 20 points. The option for excess EUR/USD of level of previous day can be sold on $38 or to purchase on $41,50. The trader decides that the price will not be recovered and sells 2 options at the price of $38, receiving a revenue of $76. Closing price of day EUR/USD above previous would become the worst outcome for the trader that will lead to accounting price of an option at level 100 which the trader will be obliged to pay. Its risk is limited (100 - 38) х 2 contracts = $124. If the underlying instrument does not terminate in increase this day the option will lose the cost, and the trader of anything should pay to nobody, while it has already received earlier $76 which become its profit.