Binary Options Basics: What Is A Strike Price?

What is a strike price in binary options?

In binary options, the strike price is the price at which the underlying asset is valued at the expiration of the option. The strike price is set by the option writer and is the same for both the buyer and the seller of the option.

• An option expires in the money if the price of the underlying asset at expiration is equal to or greater than the strike price for a call option, or equal to or less than the strike price for a put option.

• An option expires out of the money if the price of the underlying asset at expiration is less than the strike price for a call option, or greater than the strike price for a put option.

Binary options are characterized by their simplicity and all-or-nothing nature, where traders bet on whether the price of the underlying asset will be above or below the strike price at expiration. The strike price is the reference point that determines the outcome of the binary option contract.

What is the strike price with example?

The chart below visualizes the strike price on a gold options chart.

PocketOption.com

In simple words, in binary options, the strike price is the current price at which you open a position. This is the base case scenario. In advanced options trading, the strike price can be selected above or below the current price.

To learn more about the mechanics by which the options markets work, we recommend reading this article:

To learn more about the mechanics by which the options markets work, we recommend reading this article: Key Facts to Know About Binary Options Trading.

How does the strike price affect binary options trading?

The strike price plays a crucial role in binary options trading as it directly affects the potential profit or loss of a binary option contract. Here's how the strike price influences binary options trading:

• 1

  It determines the potential payout for a winning trade. The higher the strike price, the greater the potential payout for a winning call option trade. The lower the strike price, the greater the potential payout for a winning put option trade.

• 2

  It determines the risk of a losing trade. The higher the strike price, the greater the risk of a losing call option trade. The lower the strike price, the greater the risk of a losing put option trade.

• 3

  Predicting Market Direction: Traders need to make an educated guess about whether the underlying asset's price will be above or below the strike price at the option's expiration. This involves analyzing market conditions, technical and fundamental factors, and making a decision based on this analysis.

The strike price is a pivotal factor in binary options trading because it defines the conditions for profitability and influences the potential payout. Traders need to make informed decisions about the direction of the underlying asset's price relative to the strike price to be successful in binary options trading.

If you're willing to know more on how to be successful in binary options trading, this is a must read.

Best binary options brokers

1

9.4/10

Go to broker

Your capital is at risk.

Minimum deposit:

$5

Review

CloseOption is a binary options broker that was registered in Georgia in 2013 and operates under the supervision of the National Bank of Georgia. It provides its clients with trading in pairs with fiat currencies and cryptocurrencies through a proprietary web platform. CloseOption’s services are used by over 2 million traders worldwide, including the United States. The broker specializes in active options trading but also offers an affiliate program to generate passive income. More than ten payment systems are available to CloseOption clients for depositing and withdrawing funds, with the majority of them allowing fee-free transactions.

Pros/Cons

•licensed by a reputable financial regulator;

•loyal first deposit of $5;

•size of payments increases as trading volumes increase;

•money prizes for trading with virtual funds;

•many ways to contact technical support that operates 24/7.

•a small range of trading assets;

•clients cannot trade with leverage;

•payments on accounts with small deposits are lower than those of competing brokers.

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2

9.2/10

Study Review

Minimum deposit:

$250

Review

Nadex is a binary options broker working mostly with US and EU traders. The company was founded in 2009, officially registered in the State of Illinois, and regulated by US law. The broker's regulator is the CFTC (Commodity Futures Trading Commission). The main competitive advantage of Nadex is its completely transparent work, controlled by one of the most reputable regulators in the world. A distinctive feature of the broker is unique binary options products and direct access to the US exchanges.

Pros/Cons

•regulation by CFTC;

•binary options toolkit is easy to use.

•the broker works through an intermediary from the EU;

•commission for each trade is US$1;

•limited range of offered products (3 types of options);

•all information on the site is in English only;

•complex verification procedure that meets the requirements of US legislation;

•high entry threshold - $250;

•there is a flat fee for withdrawing money - $25.

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