Binary Options Jargon You Should Know

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Binary Options Jargon You Should Know

The following are some basic, and not so basic, trading terms that you’ll likely hear as you enter the world of binary options.

Call Option: An agreement between a buyer and seller that gives the buyer of the call the right to buy an underlying financial instrument at a specific price and time. In simplest terms, a call option is bought by traders expecting an asset to rise in value (above the strike price) before the option expires.

With traditional options, how much you lose or make is determined by the cost of the option (cost of option is the maximum loss) and how far the market moves above the strike price. With binary options, risk is limited to the amount invested, and profits are set at a specific amount regardless of how far the underlying asset moves above the strike price.

Put Option: An agreement between a buyer and seller that gives the buyer of the put the right to sell an underlying financial instrument at a specific price and time. In simplest terms, a put option is bought by traders expecting an asset to fall in value (below the strike price) before the options expires.

With traditional options, how much you lose or make is determined by the cost of the option (cost of option is the maximum loss) and how far the market moves below the strike price. With binary options, risk is limited to the amount invested, and profits are set at a specific amount regardless of how far the underlying asset moves below the strike price.

Underlying Instrument: An asset upon which an option is structured. Currency pairs, stocks and commodities are examples of underlying assets upon which options contracts are based.

At the Money: Refers to a situation in which an option’s strike price is the same price as the underlying instrument. For instance, if you buy an S&P 500 option with a 1500 strike price, and the S&P500 is currently trading at 1500, your option is “at the money” or “ATM”.

Refund: When the amount invested on a trade is returned to the client because the option expired at the money (ATM)–a rare occurrence.

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Out of the Money: Refers to a situation where the strike price is above the underlying futures contract price for a call option, or below the underlying futures contract price for a put option.

If the S&P 500 futures are trading at 1500, a call option is out of the money (OTM) if the strike price is above 1500.

If the S&P 500 futures are trading at 1500, a put option is out of the money (OTM) if the strike price is below 1500.

In the Money: A position where binary options traders want to be in, as in the money (ITM) means the position is profitable. It refers to a situation where the strike price is below the underlying futures contract price for a call option, or above the underlying futures contract price for a put option.

If the S&P 500 futures are trading at 1500, a call option is in the money (ITM) if the strike price is below 1500.

If the S&P 500 futures are trading at 1500, a put option is in the money (ITM) if the strike price is above 1500.

Payout: The percentage return on our investment if end up ITM.

Digital or Binary Option: An option with fixed risk and payouts based on whether the trader correctly chooses whether a financial instrument will finish above (call) or below (put) a certain strike price.

Strike Price: A price accepted at the outset of the trade which will determine if you end up ITM or OTM when the binary option expires.

Option Expiry: The time at which an option expires; this could be 60 seconds or weeks from now.

Early Closure: The ability to close an option before the official expiry time. Not all binary options brokers offer this, and there may be some fee associated with early closures.

Expiry Level: The price of the underlying instrument at the time of option expiry. For example, if the expiry level is above the strike price of a call option, the option is ITM and you get paid.

Market Price: The current real-world price of the underlying financial instrument.

Jargon of Binary Options What You should Know

by Oscar J. August 8, 2020, 2:33 PM 258 Views

Jargon of Binary Options

The following terms are basic trading terms of binary options what you may hear if you are already engaged with the binary options trading industry. The jargon of binary options is important for the traders to better understand the trading and trading platform. Once again let’s know about the Jargon of Binary Options.

1. Call Option: This is a specific agreement between the sellers and buyers which allow the buyers to buy the financial instruments at the given time and specific price. In simple by the call option traders buy an asset which value expected to rise before the trades expiry times.

In traditional binary options trading the earning or losing depends on the cost of the options. Also how far the strike price moves in the market depends on it. In binary options trading risks are limited to the invested amount and to a specific amount the profits are set, no matter how far the assets underlying price move above the trade strike price.

2. Put Option: This is the agreement between the sellers and buyers which allow the buyers to sell underlying assets within a specific time and price. In simple trades buy a put option expecting the price of the asset will fall down before the trade expiry time.

In traditional binary options trading the earning or losing depends on the cost of the options. Also how far the strike price moves in the market depends on it. In binary options trading risks are limited to the invested amount and to a specific amount the profits are set, no matter how far the assets underlying price move above the trade strike price.

3. Underlying Instruments/Assets: The assets on which the binary options trading is being structured. As the example currency pairs, commodities and stocks are the underlying instruments/assets and these are the base of binary options trading.

4. ATM/At the Money: Sometimes the strike price and underlying assets price are the same and this situation is referred as the ATM or At the Money. As the example, you buy an S&P 500 and its strike price is 1600. At the same time the S&P 500 trading price is also 1600, then your trading option is ATM or At the Money.

5. Refund: Sometimes the invested amounts on the trades returned to the traders. It’s call refund, this will happen when the trades expire on the ATM or At the Money. But this case is not so common in the binary options trading.

6. OTM/Out of the Money: In binary options trading the call options strike price can be above of the underlying future assets prices or the put options strike price can be below of the underlying future assets prices. This situation is referred as Out of the Money.

As the example, if the asset S&P 500 future trading price is 1600, for a call option it can be OTM or Out of the Money situation if the S&P 500 strike price goes above 1600. And if the asset S&P 500 future trading price is 1600, for a put option it can be OTM or Out of the Money situation if the S&P 500 strike price goes below 1600.

7. ITM/In the Money: This is a position what every binary options trader want because in binary options the ITM or In the Money means profitable position. In this situation for the call options the asset strike price stays below of the underlying future asset price, and for the put options, it stays above of the underlying future asset price.

For example, if the asset S&P 500 future trading price is 1600, for a call option it can be ITM or In the Money situation if the asset strike price stays below of 1600. And if the asset S&P 500 future trading price is 1600, for a put option it can be ITM or In the Money situation if the asset strike price stays above of 1600.

8. Payouts: After the end of ITM the return of percentage on the trader’s investment.

9. Digital Option or Binary Option: The option which has the fixed risks and fixed payouts within a specific time based on the correct predictions of the traders whether the asset price finishes above the strike price (call option) or below the strike price (put option).

10. Option Expiry Time: This is the time shows the expiry time of the trades, this could be 60 seconds to months.

11. The Early Closure: This is the feature of closing an option before the end of trade expiry time. The fact is you will not have this feature in all binary options brokers, some broker offers this feature in exchange for fees.

12. The Expiry Level: Expiry Level is the underlying asset price when ends the option expiry time. As the example, for a call option if the expiry level stays above of the asset strike price during the option expiry time, then your options are in the ITM situation and you will get paid for that trade.

13. Assets Market Price: Underlying assets current price in the real world.

Jargon of Binary Options Conclusion

In this article together we explore the basic and common terms of binary options trading. There can be more terms what we missed out. If we miss anything let us know through comments or our Contact Us form. We will update the information.

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Binary Options Jargon You Should Know

Binary Options Jargon You Should Know. The following are some basic trading terms that you’ll likely hear as you enter the world of binary options.

Call Option: An agreement between a buyer and seller that gives the buyer of the call the right to buy an underlying financial instrument at a specific price and time. In simplest terms, a call option is bought by traders expecting an asset to rise in value (above the strike price) before the option expires.

With traditional options, how much you lose or make is determined by the cost of the option (cost of option is the maximum loss) and how far the market moves above the strike price. With binary options, risk is limited to the amount invested, and profits are set at a specific amount regardless of how far the underlying asset moves above the strike price.

Put Option: An agreement between a buyer and seller that gives the buyer of the put the right to sell an underlying financial instrument at a specific price and time. In simplest terms, a put option is bought by traders expecting an asset to fall in value (below the strike price) before the options expires.

With traditional options, how much you lose or make is determined by the cost of the option (cost of option is the maximum loss) and how far the market moves below the strike price. With binary options, risk is limited to the amount invested, and profits are set at a specific amount regardless of how far the underlying asset moves below the strike price.

Binary Options Jargon You Should Know

Underlying Instrument: An asset upon which an option is structured. Currency pairs, stocks and commodities are examples of underlying assets upon which options contracts are based.

At the Money: Refers to a situation in which an option’s strike price is the same price as the underlying instrument. For instance, if you buy an S&P 500 option with a 1500 strike price, and the S&P500 is currently trading at 1500, your option is “at the money” or “ATM”.

Refund: When the amount invested on a trade is returned to the client because the option expired at the money (ATM)–a rare occurrence.

Out of the Money: Refers to a situation where the strike price is above the underlying futures contract price for a call option, or below the underlying futures contract price for a put option.

If the S&P 500 futures are trading at 1500, a call option is out of the money (OTM) if the strike price is above 1500.

If the S&P 500 futures are trading at 1500, a put option is out of the money (OTM) if the strike price is below 1500.

In the Money: A position where binary options traders want to be in, as in the money (ITM) means the position is profitable. It refers to a situation where the strike price is below the underlying futures contract price for a call option, or above the underlying futures contract price for a put option.

If the S&P 500 futures are trading at 1500, a call option is in the money (ITM) if the strike price is below 1500.

If the S&P 500 futures are trading at 1500, a put option is in the money (ITM) if the strike price is above 1500.

Payout: The percentage return on our investment if end up ITM.

Digital or Binary Option: An option with fixed risk and payouts based on whether the trader correctly chooses whether a financial instrument will finish above (call) or below (put) a certain strike price.

Strike Price: A price accepted at the outset of the trade which will determine if you end up ITM or OTM when the binary option expires.

Option Expiry: The time at which an option expires; this could be 60 seconds or weeks from now.

Early Closure: The ability to close an option before the official expiry time. Not all binary options brokers offer this, and there may be some fee associated with early closures.

Expiry Level: The price of the underlying instrument at the time of option expiry. For example, if the expiry level is above the strike price of a call option, the option is ITM and you get paid.

Market Price: The current real-world price of the underlying financial instrument.

Binary Options Jargon for Beginners

Like any other industry, there is a certain specific terminology when it comes to binary options. We’ve covered the basic terminology in a previous material as well, but this time we want to focus on some figurative phrases that are being used by binary options traders.

How can you be “at the money”?

The first phrase we want to talk about is the one above. “At the money” is a situation when the strike price is the same as the underlying instrument. Let’s take an actual example, so you can understand better. Let’s say you buy Facebook options at 165 US dollars/share. If after a certain period of time the price is still the time, you are at the money or ATM.

“Out of the money” refers to a situation when the strike price is different from the current price. Two possibilities could be spotted here. You are out of money, or OTM if you place a call option and the strike price is above the underlying price of the instrument, or if you place a put option and the opposite scenario applies.

“In the money” refers to a situation when the trader is actually in profit. When you are in the money or ITM, the strike price is below the instrument’s price for a call option and above it for a put option.

The payout represents the return on a percentage based on your initial investment. We can talk about payout only when you are ITM or “in the money”.

Refund is an operation that takes place when an option expires and the strike price is the same as the actual price (meaning you are at the money). This situation does not occur too often, but if it does, you will get your investment back.

It is important to understand that you also need to learn other valuable information, as well. The most important types of binary options and technical analysis basics are just two of the examples.

These are the most important jargon terms for binary options. From now on it will be much easier for you to understand the binary options related content.

Types of Binary Options You Should Know

If you are relatively new to the binary options industry, then you probably do not have too many information about the variety of binary options you have at your disposal. That is exactly why we’ve written this material – to make you familiar with some of the basic types of binary options you could use.

Option #1 One touch

The “One touch” binary option is basically an order that becomes profitable when the market reaches a certain level after the order had been placed. That level is also known as “trigger” in the trading jargon.

It is a very effective option, especially when the market is moving impulsively in a certain direction. It also carries a high level of risks, since the market needs to reach your trigger in order for you to make money. A well-established money management system is a must in this situation. Since there is a high level of risk, the payouts are also big, with some brokers reaching more than 300%.

If the trigger is very close to the current price, then the payout will be smaller. In the opposite scenario, it will be higher.

Option #2 No touch

This is a type of binary option that works in opposition to the one touch option. You basically are setting a level that won’t be reached by the market in a pre-determined period of time. This time, if the trigger is close to the current price, the payout will be high, and small in the opposite scenario. You have to consider very carefully the trading time ideal for binary options.

Large swings can hit your trigger and thus you will lose money.

Option #3 Double no touch

In this case, there are actually two triggers and the market needs to fluctuate between them, without touching them. If the market will reach only one of those, you will be “out-of-money” and your capital at risk will be lost.

This is an effective binary option, especially in times when the markets are ranging or consolidating. If volatility is high, this is not the right binary option you should consider.

To conclude, these three are just some of the binary options you have at your disposal. In a future article we will discuss other ones as well, but in the meantime try to test the ones above.

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