High-Low Binary Option Example

High-Low Binary Option Example

Assume your analysis indicates that the S&P 500 is going to rally for the rest of the afternoon, although you’re not sure by how much. You decide to buy a (binary) call option on the S&P 500 index. Suppose the index is currently at 1,800, so by buying a call option you’re wagering the price at expiry will be above 1,800. Since binary options are available on all sorts of time frames – from minutes to months away – you choose an expiry time (or date) that aligns with your analysis. You choose an option with an 1,800 strike price that expires 30 minutes from now. The option pays you 70% if the S&P 500 is above 1,800 at expiry (30 minutes from now); if the S&P 500 is below 1,800 in 30 minutes, you’ll lose your investment.

You can invest almost any amount, although this will vary from broker to other trading broker. Often there is a minimum such as $10 and a maximum such as $10,000 (check with the broker for specific investment amounts).

Continuing with the example, you invest $100 in the call that expires in 30 minutes. The S&P 500 price at expiry determines whether you make or lose money. The price at expiry may be the last quoted price, or the (bid+ask)/2. Each broker specifies their own expiry price rules.

In this case, assume the last quote on the S&P 500 before expiry was 1,802. Therefore, you make a $70 profit (or 70% of $100) and maintain your original $100 investment. Had the price finished below 1,800, you would lose your $100 investment. If the price had expired exactly on the strike price, it is common for the trader to receive her/his money back with no profit or loss, although each broker may have different rules as it is an over-the-counter (OTC) market. The broker transfers profits and losses into and out of the trader’s account automatically.

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One Response to “High-Low Binary Option Example”

  1. high / low o binary options trading it is the main trading option

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