The major appeal of binary options apart from the high returns, which can be over
70%, is that it is accessible to anyone who wants to trade. You don’t have to be a Wall
Street tycoon to profi from options trading nor do you need massive amounts of
capital to get started.
The trading process itself is straightforward and only requires that you make one of
two choices: you either “Call” or “Put”. You select a “Call” option when you predict that
the price of an underlying asset will fiish above a certain price and you select a “Put”
option when you predict an underlying asset will fiish below a certain price.
he price that we are referring to is known as the “Strike Price”. This is the price that
an underlying asset holds when you commence trading. If the price of the underlying
asset is above or below the “Strike Price” when the trade ends (“Expires”), you will
make a profi and be “in the money” or you will lose your investment and be “out of the
money” depending on the prediction you made.
Here’s an example using a Twitter Option. You may see that the price of Twitter stock
has been rising sharply over the last hour. Through technical analysis (we will cover
this in a later section of the Zero to Hero guide), however, you have determined the
stock price will start to fall. When you think the price has gone as high as it will go, you
can take a “Put” option with a “Strike Price” of $37.28 and an expiry time of 1 hour.
After 1 hour, when the option “Expires”, if the price of the Twitter stock option is below $37.28 youi will be in the money.
Jargon associated with binary options
• “Call Option” – Predicts that an option will expire above the strike price
• “Put Option” – Predicts that an option will expire below the strike price
• “Strike Price” – The price an underlying asset holds when you commence trading
• “Expiry Time” – This is the length of time that an option is open to trade. Expiry times can range from
60 seconds to 1 week
• “Underlying Asset” – The underlying asset is the fiancial instrument (e.g., stock, future, commodity,
currency, index) on which a derivative’s price is based.
• “In The Money” – A positive outcome (you make a profi) when a trade expires
• “Out Of The Money” – A negative outcome (you lost your investment) when the trade expire