It’s easy to look at the title and go “Oh no, they’re talking about computers!” But no, this is not about computers, it’s talking about trade, simple business. So just relax keep going.
In order to properly define the terminology involved in Binary options, as ever it is necessary to have a rudimentary understanding of binary options as a concept.
As the name suggests, it is basically a trade of only two possible outcomes: all or nothing, 100 or 0.
An investor assesses a particular stock as either going up or down. This happens within a certain period of time and depending on the outcome. He then receives either a positive or negative return on their investments.
An accurate prediction would yield a profit on the investment and an inaccurate prediction, a loss.
In the event of the market staying exactly the same throughout the predicted time period, the investment would be returned unchanged.
Binary Options Vocabulary
Oonce a concept is grasped, the subsequent terminology is simple and easy to remember.
Call Option
This option is taken when a trader makes a prediction that the market for a particular item will increase its value within the given time period.
If the prediction turns out to be accurate and the value of the market rises even on a minute scale, the trader will still profit from the investment.
For example: will fuel prices escalate to over $5 per liter by 12:45 p.m.? If your guess is that they will, you then invest in a call option and if by 12:45 p.m. your prediction is correct, you profit from the investment.
Put Options
When the trader predicts that the item in question will decrease in value within a given time period.
If proven accurate and value for the item drops even slightly, the trader will still profit from the investment. For example: will fuel prices escalate to over $5 per liter by 12:45 p.m.?
If your guess is that they will not, you then invest in a put option and if by 12:45 p.m. your prediction is correct, you profit from the investment.
In The Money
If the investor places either a call option or put option on a certain stock and their prediction turns out to be accurate, they are referred to as being ‘in the money’ as their prediction has managed to return a profit on their investment.
Out the Money
If the investor places either a call option or put option on a certain stock and their prediction turns out to be inaccurate, they are referred to as being ‘out the money’. Since their prediction being incorrect has resulted in losing the investment.
At the Money
Regardless of the trader placing a call option or put option, if price of a stock remains identical at the end of the given time limit as it was when the call was made, the trader would be ‘at the money’. The same amount that had been invested is returned in full.
Expiry Date
This refers to the end of the time period allotted for the binary option. This is done by the investor to verify if their prediction has turned out to be accurate or inaccurate.
It is determined, at this time, whether the trader either:
- in the money
- out the money
- at the money
One might wonder what the result of an investment might be if a trader made a call that a particular stock would remain at exactly the same price within the given time limit.
However, considering the highly unpredictable fluctuation of prices, it would be an improbable notion to bet your money on it. A term has not been invented for that particular call, although most businessman may just call it flat out stupid.