value of binary put option

Binary Put Option Explained

The binary options trader buys a basic binary put option if he is surly on the underlying in the very near term. This basic binary put option is also known as the common "High-Low" binary put option.

Past purchasing a basic binary put option, the trader is merely speculating that the cost of the underlying asset volition exist lower than the electric current marketplace price when the option expires, typically within next few minutes or several hours.

It is entirely up to the trader how much he wishes to invest with each purchase of the binary put option. The minimum and maximum he can invest in each put selection varies across brokerages.

Moneyness

If the price of the underlying is below the strike toll of the binary put option, the option expires in the coin and the trader stands to receive a payout. Otherwise, the pick expires out of the coin and he loses his initial investment.

In the rare event where the toll of the underlying asset is exactly the same as the strike price, the option expires at-the-money and the trader will simply become dorsum his original investment.

Limited Profit

If the binary put pick expires in the coin, the trader receives a turn a profit which is equal to the payout% multiplied by the initial investment.

Limited Hazard

If the option expires out of the coin, the trader loses his initial investment. This is also the maximum he tin lose in this trade.

Binary Put Option Payoff Diagram

Binary Put Pick Instance

A binary options brokerage is offer 85% payout for the binary put option on EUR/USD which is currently trading at $1.30.

Afterwards tracking the price motion of EUR/USD for the by hr, the binary pick trader believes that the price will drop over the next 5 minutes and decides to invest $100 to buy a binary call option on EUR/USD expiring in the next 5 minutes.

If EUR/USD goes downwards to $1.29 five minutes afterwards, the investment pays off and the traders earns a profit of 85% of his initial investment, which is $85.

However, if the price of EUR/USD rises to say $1.31 instead, the trader volition have lost his initial investment of $100.

Note that it does not matter whether the price of EUR/USD flash crashed beneath $i.00 or skyrocketed up to $1.forty, both the turn a profit and loss will be fixed at $85 and $100 respectively.

Binary Call Choice

If the binary options trader is bullish on the underlying price, he or she can buy a binary call option instead.

See Also

One-Touch Binary Put Option

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