Overview of the Different Binary Option Trade Types
Experienced traders are aware that a myriad of different binary option types have been created by brokers in response to market demand. An overview of the main types of binary options will help newer traders familiarize themselves with this possibilities offered in this exciting, and relatively new, investment field.
The most basic form of binary options are high/low options, which are also referred to as call or put options. If you buy a call option, you are wagering that the price of an underlying asset will be above the “strike price” at the expiry time. The strike price is usually the price of the asset at the time you purchased the option. The expiry time is the date and time when your option expires.
As you can see, high/low options offer a pure wager on the direction of a financial asset. If you are correct, you are paid an agreed percentage of the option price that can be in the 70-85% range. If you are wrong, you lose the full purchase price of the option.
Just as you can choose any underlying asset, you can choose an option period of nearly any length, including one that is as short as a minute. Traders usually pursue such short-term trading options in order to take advantage of strong, predicted short-term movements in an underlying asset.
And as for the underlying asset itself, you can focus on whatever you are most skilled in, be it stocks, currency values, commodities or indices. The broker platforms will accommodate all of these and more.
What if you conclude that a financial asset will reach up to, or down to, a certain price level during the option period, but you are not sure that the asset will be at or beyond that level at the expiry of the option period? In that case, the one touch option will permit you to trade on your insight.
This option offers a payout in the even that the price of the underlying financial instrument reaches a “trigger,” meaning a pre-agreed price level, at any time during the option period. In essence, the one touch binary option extends the trader’s wager to encompass upward or downward volatility in a financial asset.
Range options allow a trader to wager that an underlying asset price will, at expiry, be within a specified price range. If at the expiry time the price of the asset is within that pre-selected range, the trade is “in the money,” and the trader will collect the payout. If the price is outside that range, whether above or below it, the trader will surrender the option price.
These different trade types allow traders to focus on developing expertise in whichever aspect of the underlying market they wish. The extraordinary flexibility of binary options, not only in option types, but also in selection of underlying assets and expiry periods, has proven to be an enduring attraction traders and retail investors alike.