Assume the futures contracts on the Standard & Poor's 500 Index (S&P 500) is trading at 2,. An investor is bullish and feels that the economic data being released at 8:30 am will push the futures contracts above 2,060 by the close of the current trading day. The binary call options on the S&P 500 Index futures contracts stipulate that the investor would receive $100 if the futures close above 2,060, but nothing if it closes below. The investor purchases one binary call option for $50. Therefore, if the futures close above 2,060, the investor would have a profit of $50, or $100 - $50.
To get a rough but useful idea of the probability, just find the mid-point between the contract's bid and offer price, the prices that sellers and buyers are paying, respectively.
Contrary to a digital call option, a digital put option is a bearish bet on an underlying security. For example, assume that a trader is bearish on the S&P 500 Index and believes it will close below 2,070 on June 2. At 12:45 ., the trader purchases 10 S&P 500 Index 2,070 cash-or-nothing put options for $30 per contract. If the S&P 500 Index closes below 2,070, the trader would profit $70, or $100 less $30, per contract. However, if the S&P 500 Index closes above 2,070, the trader receives nothing.
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What is a 'Binary Option' ... hence “binary”. A binary option automatically ... The quotation and pricing structure of the currencies traded in ...
If GOOG closes at $600 or higher by the expiration date then the binary option is worth $100 so five of these GOOG call options would be worth $500, for a profit of $350. It doesn't matter if GOOG closed at $600 or $650, the binary option is still worth $100. If GOOG closes at $ or lower, then the option expires worthless.
Supershare options are based on a portfolio of assets with shares issued against their value. Supershares pay a predetermined amount if the underlying asset is priced between an upper and lower value at expiry. The amount is usually a fixed proportion of the portfolio.
A Binary Option is an option where the holder either gets a Pay-out that is a fixed pay-out or 0 (1 or 0). This is why it is called “Binary” or digital. There are only two possible outcomes.
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The binomial pricing model traces the evolution of the option's key underlying variables in discrete-time. This is done by means of a binomial lattice (tree), for a number of time steps between the valuation and expiration dates. Each node in the lattice represents a possible price of the underlying at a given point in time.
The second class includes options where a payout of cash (or the asset) is made if the barrier is hit (or not hit) during the life of the option and if the option is in-the-money at expiry. These are types of knock-in and knock-out binary barrier options.
[ AssetPrice , OptionValue ] = binprice( Price , Strike , Rate , Time , Increment , Volatility , Flag ) prices an American option using the Cox-Ross-Rubinstein binomial pricing model.
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A simple generalization of the asset-or-nothing option is a digital-gap-option. A digital gap option has a payout profile equal to the asset value, less the gap value, depending on whether the asset finishes above or below the strike price. It is clear that a digital gap option is simply the difference between an asset-or-nothing and a cash-or-nothing digital option with the cash amount set to the gap value.
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