How Call And Put Options Work In Binary Trading

Binary Call Options

Binary Call Options are financial derivatives that provide traders with the opportunity to speculate on the upward movement of asset prices. In binary trading, a Call Option pays out a fixed amount if, at the option's expiration, the underlying asset's price is above a predetermined strike price. This indicates a bullish outlook, where the trader expects the asset's value to rise.

An example of how a call option works in binary trading

Example: Let's consider a binary call option on AAPL (Apple) stock with a strike price of $197.89 and an expiration time of one minute. If, at the end of the minute, the AAPL stock price is above $197.89, the binary call option would pay a fixed predetermined percentage on your investment amount, (which is usually 70-85% of the option cost). However, if the stock price remains below $197.89, the option would expire worthless, and the trader would incur a loss equal to the initial cost of purchasing the option.

Binary Put Options

Binary Put Options are financial instruments in binary trading that allow traders to speculate on the downward movement of asset prices. A Binary Put Option pays out a fixed predetermined amount if, at the option's expiration, the underlying asset's price is below a specified strike price. This reflects a bearish outlook, indicating the trader's expectation of a decline in the asset's value.

Example - Consider a binary put option on Gold with a strike price of $2025.42 and an expiration time of 10 minutes.

An example of how a put option works in binary trading

Let's say you buy a call option worth $100 and payout ratio = 90%.

If the price of gold is below $2025.42 in 10 minutes, you will be paid a fixed amount of $90 on the binary put option. However, if the price of gold is above $2025.42, the option will be worthless, resulting in a loss equivalent to the cost of buying the option ($100).

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.

Study Review

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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Comparison of call and put options

Similarities

Binary Nature: Both Call and Put Options in binary trading have a binary outcome. They either result in a fixed payout if the condition is met or expire worthless if it is not.

Expiration Time: Both options have a predetermined expiration time, and the outcome is based on the asset's price at that specific moment.

Fixed Payout: In successful scenarios, both options offer a fixed predetermined payout, providing clarity on potential profits. Similarly, both put options and call options offer a fixed risk that is equal to the value of the option.

Extra fast earning opportunities: Since in binary options, the expiry time can be as short as one minute, you can quickly increase your capital. Of course, if you can predict the price accurately enough for the near future. For understanding effective binary trading strategies, we recommend reading: Best Binary Option Strategies.

Differences

Tips for novice put and call option traders

• Understand Risk-Reward Ratio: Assess the potential reward against the risk before entering a trade.

• Limit Investment Percentage: Avoid investing a significant portion of your capital in a single trade.

• Stay Disciplined: Stick to your trading plan and avoid making impulsive decisions based on emotions.

• Use Hedging Strategies: Consider using options to hedge against potential losses in your portfolio.

Want to try to start a career as a binary options trader? Here's what you need to know for a successful start: How to start binary trading for beginners