Binary Options, as with many forms of trading, has many unique words and phrases that may not be familiar to investors new to this form of investment. Some terms are obscure enough to have escaped even seasoned traders. Here we have tried to collate as many of those binary option terms as possible, and listed them in our glossary alphabetically. If you are looking for a particular term and it is not covered, please let us know via our contact us page and we will gladly look to add it.
An option contract that may be exercised at any time between the date of purchase and the expiration date.
The simultaneous purchase and sale of financial instruments in order to benefit from price discrepancies.
This is the price at which a potential seller is willing to sell.
When an option’s strike price is the same as the prevailing stock price.
An option strategy that makes its maximum profit when the underlying stock declines and has its maximum risk if the stock rises in price.
A figure that indicates the historical propensity of a stock price to move with the stock market as a whole.
The price at which a potential buyer is willing to buy from you.
The difference between the prevailing bid and ask price. Generally, option contracts that are more liquid tend to have a tighter Bid/Ask Spread while option contracts that are less liquid tend to have a wider Bid/Ask Spread.
Options that either pay you a fixed return when it ends up in the money by expiration or nothing at all. Read more about Binary Options.
Even Point- the price at which a particular strategy neither makes nor loses money.
Different ways to use options in order profit from an upwards move in the underlying market.
To establish an options position by going long.
Option which gives the holder the right to buy the underlying security at a specified price for a certain, fixed period of time.
Options which, when exercised, delivers the profit in cash instead of an underlying asset.
Period at the end of a trading day where final prices for the day are calculated.
The amount of underlying asset covered by the option contract.
A static hedging technique involving buying 1 put option or selling 1.
Traders who open and close option positions or multiple option positions all within the same trading day.
The amount by which an option’s price will change for a corresponding change in price by the underlying entity. Call options have positive deltas, while put options have negative deltas.
When positive delta options and negative delta options offset each other to produce a position which neither gains nor decreases in value as the underlying stock moves slightly up or down.
A financial instrument whose value is derived in part from the value and characteristics of another financial instrument. Examples of derivatives are options and futures.
To invoke the right granted under the terms of a listed options contract. The holder is the one who exercises. Call holders exercise to buy the underlying security, while put holders exercise to sell the underlying security.
The price at which the option holder may buy or sell the underlying security, as defined in the terms of his option contract.
The day on which an option contract becomes void.
The time at which an option expires.
When out of the money options lose all their value and expire.
Also known as “Premium Value” or “Time Value”. It is the difference between an option’s price and the intrinsic value.
A physical or electronic document that has intrinsic monetary value or transfers value. For example, cash, shares, futures, options and precious metals are financial instruments.
The rate of change of a stock option’s delta for one unit change in the price of the underlying stock.
A set of mathematical criteria involved in the calculation of stock option prices.
The process of placing a trade in order to reduce risk on other trades or assets.
A futures contract on an index in the futures market.
Data such as interest rates, inflation and employment figures, which indicate the strength and significant trends in a nation’s economy.
The rate at which the price of goods and services rises within an economy.
This is the amount needed as available trading resources in your account in order to open a position.
Initial Public Offering. Private company’s first offer of stock to the public.
A put option that has a strike price higher than the underlying future price, or a call option with a strike price lower than the underlying futures price.
The value of an option if it were to expire immediately with the underlying stock at its current price.
Economic indicators that follow rather than precede a country’s overall pace of economic activity.
The last day on which you can open or close a trade in a particular market. The last trading day is not the same as the expiry date.
Economic indicators that change before the economy changes.
A technique to multiply gains and losses. Most often used when buying more of an asset with borrowed funds. (Also referred to as “gearing”)
London Interbank Offered Rate.
A buy position opened in the expectation that the market price will rise.
The deposit or available credit needed on your trading account in order to keep your positions open.
A call from the credit department for further funds to be deposited in the account to support additional exposure from running losses.
The price offered at which someone can buy; also called the ask.
A financial derivative instrument that gives the right to purchase (call) or sell (put) a fixed amount of stock at a specified price and within a certain time limit.
Also called the option seller, an option seller grants the right to trade a security at a given price in the future.
A call option is out of the money if the strike price is greater than the market price of the underlying security.
A collection of financial investments.
A put gives a trader the right, but not the obligation, to sell the underlying instrument at a fixed price up to a predetermined date.
A real-time stock or bond quote is one that states a security’s most recent price as opposed to a delayed quote.
A price level above which it is difficult for a security or market to rise.
A sell position opened in the expectation that the market price in that underlying product will fall.
A market in which commodities are bought and sold for cash and immediate delivery.
The difference between the buy and sell price of an asset.
An order to close a position at a particular level when the price moves against you.
An opening or closing order to buy or sell at a worse price to where the market is currently trading.
Purchase or sale of an equal number of puts and calls with the same terms at the same time.
Buying or selling an out-of-the-money put option and call option on the same underlying instrument, with the same expiration. Profits are made only if there is a drastic change in the underlying instrument’s price.
The stated price per share for which underlying stock may be purchased or sold by the option holder upon exercise of the option contract.
A price level below which it is supposedly difficult for a security or market to fall.
Analysis of a financial market by charting its performance, using historical patterns, and focusing on trends.
Range between the highest and lowest prices at which a stock is traded.
The security or market on which derivative prices are based.
A market that changes rapidly or suffers from extreme fluctuations.