Learn Binary Options- A Basic Understanding Of The Binary Options Terminology
When you make up your mind about investing in binary options, the first step you will take is begin searching about it. Google might be the easiest and most convenient option you have. There are many online reviews and guides that explain what binary options are and how do they function. However, before you can understand how the binary options work, you will need to understand some terms which are closely associated to binary options trading. The following discussion provides a comprehensive coverage of some of the terms which are repeatedly used in all places where binary options are explained.
The two types of options that an investor can buy are call option and put option, which is described below:
Call option:
A call option is the right to buy a security at a predetermined strike price. This means that if you have purchased on call option which has a strike price of lets say $35, then you have the right to buy the underlying security at this price when the market price of the security has gone up to $40. This way by exercising the call option you make a gain of $5 by purchasing for less than the market value of the security.
Put option:
Put option is the exact opposite of a call option. It provides the investor the right to sell the underlying asset or security at a predetermined strike price. This means if the strike price is $35 and the market value of the security has gone down to $30, the investor can make a gain of $5 by selling for more than the current value of the security.
Strike price:
As must be evident by now, the predetermined price in both the call option and the put option is given the name of strike price in binary option terminology.
Expiry date:
Binary options have a fixed expiration date. Some options can be exercised anytime before their expiry dates. These types of options are known as the American options. The other types of options which are more common are the European options. In the European option, the binary option can only be exercised at the time of the expiry date.
Binary option:
You should also know why this right to buy and right to sell securities is referred to as a binary option. Binary means 2 and these options have two possible scenarios that are either the investor makes a profit or the investor makes nothing on them.
The two types of options that an investor can buy are call option and put option, which is described below:
Call option:
A call option is the right to buy a security at a predetermined strike price. This means that if you have purchased on call option which has a strike price of lets say $35, then you have the right to buy the underlying security at this price when the market price of the security has gone up to $40. This way by exercising the call option you make a gain of $5 by purchasing for less than the market value of the security.
Put option:
Put option is the exact opposite of a call option. It provides the investor the right to sell the underlying asset or security at a predetermined strike price. This means if the strike price is $35 and the market value of the security has gone down to $30, the investor can make a gain of $5 by selling for more than the current value of the security.
Strike price:
As must be evident by now, the predetermined price in both the call option and the put option is given the name of strike price in binary option terminology.
Expiry date:
Binary options have a fixed expiration date. Some options can be exercised anytime before their expiry dates. These types of options are known as the American options. The other types of options which are more common are the European options. In the European option, the binary option can only be exercised at the time of the expiry date.
Binary option:
You should also know why this right to buy and right to sell securities is referred to as a binary option. Binary means 2 and these options have two possible scenarios that are either the investor makes a profit or the investor makes nothing on them.
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