Basic Terminology about Binary Options

Many words can be brought up in a conversation about binary options in the trade market platform.  Many people are not associated with what these terms mean and do not fully understand the potential in using binary options.  If understood binary options give investors in the financial world a window of opportunity for growth and profit.  First let explain what a binary option is.  A binary option is a kind of option in where the profit is either a fixed amount of asset or nothing at all.  There are two kinds of binary options available.  These are either a cash-or-nothing or an asset-or-nothing.  Here are some words that will help you understand the world of binary options:

  • Cash-or-nothing – pays a fixed amount of profit if the option expires in-the-money.
  • Asset-or-nothing – pays the value of the underlying security.
  • Black-Scholes model – Model used with certain copied investment instruments.
  • Vertical Spreads – Strategy combining buying and selling multiple options of the same security and expiry date but hold different strike prices.  Some names of certain ones are the Bull Vertical Spread and the Bear Vertical Spread.
  • Maturity Date – Final payment date when the principal is due.
  • Over-the-counter – When the issuer sells directly to the buyer.
  • Call option – the buyer believes in an increase in value of an asset.
  • Put option – the buyer believes in a decrease in value of an asset.
  • Naked Call- when a call option is written by an investor without the ownership of the security.
  • Strike Price – a fixed price where the owner can buy or sell the underlying security or commodity.
  • Moneyness – financial contract value
  • Expected return – a variable mostly representing a gain’s expected value using the trade platform.
  • Asset – usually a commodity, stock, currency pair or index used to determine a contract.
  • Boundary or Range Instrument/Platform – where the investor decides whether the asset will increase or decrease at the expiration.
  • Current Price – where pricing is in “real time” without a delay.
  • Commodities – raw materials that are used for placing a trade such as food, energy or metals.
  • Digital Option –proposes a predetermined fixed return by contract.
  • Early Closure – closing an open position where the option immediately expires.
  • Expiry Level – the underlying asset’s value at the expiration time.
  • Expiry Time – when an option or trade expires.
  • Fundamental Analysis – examines data and estimates the value at a given time.
  • High – when believed an asset will expire at a higher price than what targeted.
  • Index/Indices – list of stocks that can be traded on a platform.
  • Inside/Outside – the trade’s final position at the expiry time.
  • Investment Amount – how much money is invested at time of trading on the platform.
  • Low – when estimating that an asset with have a lower price at expiration than what was targeted.
  • Market Place – a price that is quoted for the current value.
  • No Touch – where an asset does not equal or surpass its targeted level.
  • Out of the money – when as asset trades into a position that’s not chosen by an investor.
  • Refund – refund amount if option expires “at the money”.
  • Return – returned amount to an investor if option expires “in the money”.
  • Stock – ownership of shares in a specific company.
  • Strike Price – the value of an asset at time of sale.
  • Target Price – The price that an option is willing to sell at.
  • Technical Analysis – Examines historical data to develop a hypothesis on future tendencies in the pricing of assets.
  • Touch – when a predicted level overcome or surpassed within the life cycle only once.
  • Underlying Asset Types – these include stocks, commodities, indices and currencies.

As you can see there are many terms that are used on the trading platform when it comes to binary options.  The financial world has had an increase in the usage of binary options and continues to grow.  If looking to become an investor take note of the word usage and it will help to put you on the road to profit.

John was born in Wollongong (NSW ) and studied at The London School of Economics ( England, UK ). Currently he lives in Sydney ( NSW ) and he works as financial market analyst.

Facebook Twitter Google+ 

John Walker
Follow me

John Walker

Financial Analyst at Clicking Media Group
John was born in Wollongong (NSW ) and studied at The London School of Economics ( England, UK ). Currently he lives in Sydney ( NSW ) and he works as financial market analyst.
John Walker
Follow me

Leave a Reply