You will learn about the following concepts
- What is expiration time
- Strike time
- Strike price
- Expiry time alternatives
- Expiry time extension
- Early trade close
- Double Up
Expiration time marks the moment when the binary option expires. It basically determines how long after you’ve placed the trade, you’ll learn the outcome of your bet. Depending on the type of binary options you are trading and, of course, the type of your binary option broker, you may see different expiration times when placing a trade. After you have placed your bet and picked the expiration time, the only thing you can do is to wait for that time to come. When the option expires, the trading platform will assess the value of the asset and determine whether your position is in or out of the money.
Strike Time, Strike Price and Expiry Time Alternatives
There are several other terms that are closely related to expiration time. For example, when a trader places a bet, the hour at which the trade was placed is often referred to as strike time. The exact price of the asset at the execution time of a certain trade is called strike price.
At this moment, the trader is supposed to predict both the direction of the assets price and pick the expiration time. For example, if the trader thinks that the asset’s price will rise, then they have to select the Call option. Conversely, if they think the price will go down, then they have to execute a put option.
Don’t forget that your broker may offer different expiry times for different types of assets. In most cases brokers will give you the opportunity to choose between hourly, daily and weekly expiry, but some brokers also offer 60-second options which allow you to quickly execute trades with an expiration time of just one minute.
Expiry time is one of the most important aspects of trade execution. The larger the expiration time, the more likely it is for the asset’s price to drastically change under the influence of market changes. Of course, this doesn’t necessarily mean that shorter expiration times are preferred – this entirely depends on the trader’s trading style and and his/her choice of analysis methods.
Some brokers allow you to extend your expiry time, also known as “rollover”, which is useful when you see that the underlying assets price is moving in the desired direction, but not fast enough, or it is not going well at all. This option will give your position a fighting chance to become “in the money”.
However, you will have a limited time to do so. Brokers typically open up a window lasting around 3-5 minutes to exercise this feature, which is usually shortly before the option expires. Also, you are typically allowed to extend your option only once for its entire duration.
Early trade close
Opposite to the expiry time extension, some brokers provide you with the opportunity to close your trade earlier than originally planned. Traders usually use this option when their trade is profitable and they are unsure whether it will remain like that. However, just like the trade extension, it comes with a limited time window – it becomes available 15 minutes before the expiry and lasts for 10 minutes. Also, brokers tend to charge a premium for this option which can amount to as much as 50% of the original payout.
Some brokers allow you to double your bet, in case you are feeling confident enough. The double-up option doubles your investment while keeping your current expiry time and direction. However, the entry rate will be updated to the current rate at the time the Double Up option was exercised. In exchange for our increased investment, we will logically receive the same rate of increase in profit, given the option becomes “in the money”.
Even if you choose not to use these options (rollover, early close and double up), all of them expand the range of trading decisions you can make and, thus, allow for more customization of your trading strategy. That is always a good thing.
Let’s say that a trader has just bought a put option on the USD/JPY currency pair. The strike time is 13:30, the strike price is 99.15 and the expiration time the trader picked is two hours. This means that the trade will close at exactly 15:30 and the trader will find out if their trade will expire in-the-money or out-of-the money. If at 15:30 the price of USD/JPY is lower than the strike price, then the option will expire in the money and the trader will collect his/her winnings. Conversely, if the price is higher than 99.15, say 99.25, then the option will be out-of-the-money and the trader will lose the capital he had wagered.