You will learn about the following concepts
- One-touch options
- No-touch options
- Double one-touch options
- Double no-touch options
- Paired options
As you already should have learned by now, binary options are called “binary” because your payout depends on only two possible outcomes – the price either goes up or down. You will receive your payout depending on whether you have predicted the direction correctly or not.
The simplest variation of binary options are the pure Call and Put options. You purchase a Call option, if you think that the price will go up. Conversely, a Put option speculates that the price will go down. However, the variety of binary options does not end here and the more advanced traders have a set of more exotic options at their disposal. Lets have a look.
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This type of option pays out an investors profit once the price of the underlying asset reaches a predetermined barrier, also known as a “trigger”. Once the trigger level has been reached, the trader will receive his payout. This type of option is preferred when an investor is sure that the assets price will perform a strong move in a certain direction and will hit the trigger value, disregarding whether the price jump is sustainable or the market will retrace.
Unlike the standard binary option where you only have to predict whether the price will go up or down, here both the direction of movement and the trigger level are predetermined (some brokers allow traders to set these levels). You only have to decide whether the conditions will come into fulfillment. Although for the option to be “in-the-money” it will have to touch the trigger level only once, the one-touch option is generally more riskier than standard binary options and therefore offers a higher payout, which can reach up to 500% with some brokers. Also, these options are generally available for purchase during the weekend with the payout condition being to reach the trigger level within the next working week.
The no-touch option works in the opposite fashion to one-touch options. Here you wager that the underlying asset will not reach a certain price level. Just like the one-touch option, you, or your broker, select a certain price level above or below the spot (current) price and bet that the price will not reach the determined level within the expiration period. If it does hit it, even once, the option will instantly become “out-of-the-money”, and vice versa.
As for the return, due to the higher risk they carry, these options can also yield a return of up to 500%, depending on the distance to the trigger value. Both touch and no-touch options offer a higher payout, if the conditions are harder to fulfill.
One-touch options will pay out more money, if the trigger is further away from the spot price. For example, if gold currently trades at $1 300 per troy ounce, a one-touch option with trigger at $1 350 will offer a higher return than one with a trigger at $1 325.
Conversely, no-touch binary options offer higher return the closer the trigger is. Thus, a trigger of $1 325 will pay out more money than a trigger of $1 350, because the chance of hitting the closer target is higher (the risk for the option to become “out-of-the-money” is greater).
Double One Touch
Double one-touch options follow the same logic as one-touch options. However, here we have two triggers, one of each side of the spot price. Your option will become “in-the-money” if the price of the underlying asset breaks through one of the triggers, no matter which one.
For example, if gold currently trades at $1 300, and you, or your broker, have set the upper trigger at $1 350 and the lower trigger at $1 250, your option will be profitable if gold either rises to $1 350, or falls to $1 250. Conversely, if the price fails to touch any of the two triggers through the expiry time, it will become “out-of-the-money”.
Thus, double no-touch options are suitable for conditions of market consolidation when the trader is sure that the price will accelerate and break out soon, but doesnt know in exactly which direction.
Double No Touch
As logic dictates, double no-touch options follow exactly the opposite principle compared to the double-touch options. Here we have two triggers as well, but for the option to be “in-the-money” the underlying assets price shouldnt reach either of them during the expiration period. In case one of them is hit, the option becomes “out-of-the-money” and you lose your investment. Thus, traders generally prefer to invest in such an instrument when they expect that the market will consolidate in a tight trading range, which often comes after a buy or sell climax (a strong price spike).
Paired options are another, more exotic, type of binary options. They are offered only by some brokers and basically are based on the performance of one asset relative to another. Here the trader chooses a pair of assets from a list and bets which asset will outperform the other during the selected period. Assets are paired according to their class and sector (these categories must match).