Binary Option

A type of option in which the payoff is structured to be either a fixed amount of compensation if the option expires in the money, or nothing at all if the option expires out of the money.

These types of options are different from plain vanilla options

Also sometimes referred to as "all-or-nothing options" or "digital options".

For example, suppose you were interested in buying binary call options for common shares of ABC company with a strike price of $50 per share and a specified binary payoff of $500. If the stock is trading above $50 when the expiration date is reached, you would receive the $500 payoff for your option contract. However, if the stock is trading below $50 per share at the expiration date, you receive nothing.


Investment dictionary. . 2012.

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