Binary options have appeared as the latest financial derivative in the market place. As a derivative, they are tradeable and offer traders interesting and profitable trading. As an all or nothing asset, if the trader is correct and the option is “in the money,” he receives a predetermined payout; however, if the trader is incorrect, and the option expires “out of the money,” then the trader receives nothing, and in the process, losses their original investment premium. There are a variety of binary options that the trader can deal in, and one of them is BOUNDARY option or RANGE option.
The BOUNDARY binary option lets a trader make a prediction what will be the expiration price of the binary within a range of prices. Some broker platforms also label this binary option as an IN/OUT binary option. With this Range option, the payout occurs at expiration if the binary price settles within the range the trader picked. Since binary options are derivatives, settlement is based on the underlying asset and the range set is for the underlying asset. With binary option platforms that use the IN/OUT lexicon then the underlying has to settle “in” the range set by the trader for the payout. Conversely, if the final settlement price ends up “out” of the range, then the trader losses his initial premium.
The attractiveness of the Boundary/Range binary option is that the trader is setting a range of prices which are like soccer goals. You don’t need to pick one price, but two prices and everything in between. While initially this may seem to be a relatively easy concept to trading binary options because your target is “wider” and may therefore seem “easier to hit.” What is extremely enticing is the payouts. Boundary binary options pay a relatively larger payout. Plus, it is possible to make quick returns because the trader can set short time frames. However as the adage of the market goes, where there is reward, there is risk!
Many traders think that just setting a range will imply profits, yet the underlying has to move into that range, and the underlying economic rational for the underlying asset has to be analyzed to see if there is a reason for the market to price the underlying within the trader’s expected range. Not only must the trader speculate on what the price boundaries could be, but the trader also sets their time span. We all know that this is one of the toughest aspects to options. They exist only for a finite period of time. Either the underlying reaches the trader’s target within that given time or poof, all is lost. Hence, do your homework for the underlying otherwise you will be burning cash up like the paper is just really is. The only happy person is the other side of your trade as they made the money on your poor judgment.
Do your homework, then you will be the happy trader who is wracking up the large profits because you shoot the “GOAL.”.