Learn About Binary Options
By Stock Options Channel Staff
Slide #1: What Binary Options Are
To introduce binary options, we will use the example of a coin flip. Will you choose heads? Or tails? Your pick. Since the
odds are 50/50, let's each put in $50, winner take all. We'll schedule the coin to be flipped at 1PM
by a neutral third party. What we've set up here is a "binary" outcome, in
other words a true/false outcome. The coin can only land heads, or tails, when it is flipped at 1PM. This is effectively a $100 binary
option.
Binary options trading platforms work essentially the same way, but instead of looking at the outcome of a coin toss, you are
focusing on
something in the stock market, forex market, or commodities market. In commodities for example, you might have a feeling on
whether Gold will be above or below a certain price per ounce at 1PM two days from now. Depending on where Gold is trading,
the odds will probably tilt in one direction or another. Those odds will drive the cost of the option in either
direction, but in either case you know the exact amount of money you can lose as well as the amount of money you
can win (the amount other person would lose).
Certain binary options platforms will allow you to trade out of a position prior to expiration. In trading, the value of
the option is determined by the market forces for that option, and would be expected to move based upon the value of the asset
being tracked and the time premium until expiration.
|
