Binary Options: Strategies for Directional and Volatility Trading

Glossary

At-the-Money The strike price of an option contract and the price of the underlying asset on which the option is based are at the same level.

Bid The current price to sell an option.

Binary Option Also known as digital options or all-or-nothing options. They are a type of options derivative. Binary options can be considered a yes-or-no proposition—either the event happens or it does not.

Buying Volatility Speculation that the underlying asset will make a large move without necessarily picking direction.

Call A call option gives the owner the right to purchase the underlying instrument at a particular price (known as the strike price) any time before expiration.

Ceiling Also known as the maximum gain, or the most you can profit on a binary option trade.

Collateral The amount of money a trader will need to provide in order to trade a binary option. If the trader's assumption is correct, the trader will be given back the collateral plus profit.

Commission Fees charged by a broker or exchange to trade.

Commodity Physical goods, such as oil, corn, or gold.

Commodity Future Futures contracts that can be used to speculate or hedge on various physical commodities.

Contract A trading unit for a derivative instrument. Binary options are traded in contracts.

Currency Pair Currencies are always quoted in pairs, such as GBP/USD or USD/JPY. The reason they are quoted in pairs is that in every foreign exchange transaction, you are simultaneously buying one currency and selling another. ...