The Essential Lexicon in Binary Options

Understanding the vocabulary of binary options is essential to trading them successfully, because you have to grasp the concepts to trade them.Binary-Options

Expiry or Expiration
This is when the option contract ends. For ordinary options, it’s always on the third Friday of a particular month, which can be far in the future. For binary options, it can be as far in the future as a month away, but weekly and daily expirations are more common. Intraday expiration is most common. That is, it could be 4:00 PM Eastern Standard Time or 9:45 A.M. Trading of binary options continues right up to the expiry. There are even binary options that last only sixty seconds.

Strike Price or Threshhold
This is the price the underlying security must exceed by the expiry time for option owners to be in the money.

Underlying Security or Asset
This is whatever type of asset whose performance the binary option is based on. It could be an individual stock such as Google. It could be a stock index such as the S&P 500. It could be a foreign exchange pair such as EUR/USD (the ratio of the euro to the US dollar) or a commodity such as gold. It’s even possible to purchase binary options based on clearly defined events, such as whether or not the Federal Reserve will raise interest rates at their next meeting.

Expiry Level
The current market price of the underlying security as of the expiry time. This determines whether the binary options traders win or lose.

Out of the Money
If the underlying asset has not reach the threshhold by the expiry time, the binary option expires out of the money. It’s worthless. The trader now owns nothing.

In the Money
If the underlying asset has crossed over the threshhold by the expiry time, the binary option is in the money. Its owner receives $100.

Ask Price
What a trader must pay to the broker to buy a binary option.

Current Price
This is the underlying asset’s current market value.

At the Money
Sometimes the underlying asset ends up exactly on the strike price. That is, not above it and not below it. Depending on the option contract, in some cases the trader gets a refund of the money they paid.

Fees or Commissions
What the brokerage charges traders to place their trades. Win or lose, trading options is never free.