StockOptionsChannel
Learn About Binary Options
By Stock Options Channel Staff
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Slide #2: Binary Options Differences
With traditional options, investors can employ such strategies as selling calls for income against a position, or selling puts for income or to build a position. With these strategies, the investor may have a portfolio position called away if the call option is exercised, or may be put a position if the put option is exercised.
While traditional options are used in conjunction with managing existing portfolio positions, binary options do not affect a position beyond any usefulness as a hedge. If you use a binary option to make a directional trade on the price of Gold, there is no scenario where you end up owning Gold, nor where you end up selling Gold if you owned it. With binary options there are no associated rights to purchase or sell an underlying asset. Instead, your binary options account contains cash, and when you trade binary options you either simply make money or lose money, depending on the outcome of each trade.
With traditional options, a put or call buyer can exercise immediately if they so choose, or at any time until expiration, and may also trade out of the option whenever the market is open. With binary options, in choosing a platform, one important factor to look for is the ability to trade before expiration. Otherwise, the contract simply exists until expiration and then automatically exercises, delivering the cash payout to the side that was correct in their trade.
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