An option is a contract that gives you the right to buy or sell a stock at a specific price (called the "strike price"), but the catch is there is a specific time limit, too.
They expire.
Some people like options because you can make (or lose) a lot of money very quickly if you do it right.
There are two types of options: "call" options and "put" options.
I have no idea why that's what they are called, but those are the names.
Each type of option can be bought or sold (just like with stock).
So you can buy a call, sell a call, buy a put, or sell a put.
Every option is "worth" 100 shares of stock.
A "call" option gives the owner the right (but not the obligation) to buy a stock at a particular price on or before the option's expiration date.
So for example, if you own 1 call option for stock XYZ with a strike price of $50, but XYZ is currently trading at $45, then your option wouldn't be worth much.
Remember, your option gives you the right to buy 100 shares of XYZ at $50 per share, but since it's currently trading at $45 per share, it wouldn't make any sense to buy it for $50 when you could buy it on the market at $45.
Think of it like if you had a written offer to buy a car for $15,000, but you go to the dealer and see the car is currently priced at $14,000.
You wouldn't even use the written offer.
Now, if the stock goes up to $60 per share, you still have your option which is letting you buy the shares at $50 per share.
NOW your option is awesome, because you can use it to buy shares at $50 and then you can immediately sell them for $60.
It's like if you have that written offer for your car for $15,000, and you get to the dealership and the car is priced at $20,000.
Now it makes sense to use that written offer.
Whereas the value of a regular option changes constantly based on the price of the underlying, binary options differ in that the payment is either a fixed amount or nothing at all.
For example, if you buy a binary call option for ZYX company with a strike price of $50 and a payoff of $500, when the option expires, if ZYX is trading at or above $50 per share, you get $500.
If it's not, you get nothing.
They expire.
Some people like options because you can make (or lose) a lot of money very quickly if you do it right.
There are two types of options: "call" options and "put" options.
I have no idea why that's what they are called, but those are the names.
Each type of option can be bought or sold (just like with stock).
So you can buy a call, sell a call, buy a put, or sell a put.
Every option is "worth" 100 shares of stock.
A "call" option gives the owner the right (but not the obligation) to buy a stock at a particular price on or before the option's expiration date.
So for example, if you own 1 call option for stock XYZ with a strike price of $50, but XYZ is currently trading at $45, then your option wouldn't be worth much.
Remember, your option gives you the right to buy 100 shares of XYZ at $50 per share, but since it's currently trading at $45 per share, it wouldn't make any sense to buy it for $50 when you could buy it on the market at $45.
Think of it like if you had a written offer to buy a car for $15,000, but you go to the dealer and see the car is currently priced at $14,000.
You wouldn't even use the written offer.
Now, if the stock goes up to $60 per share, you still have your option which is letting you buy the shares at $50 per share.
NOW your option is awesome, because you can use it to buy shares at $50 and then you can immediately sell them for $60.
It's like if you have that written offer for your car for $15,000, and you get to the dealership and the car is priced at $20,000.
Now it makes sense to use that written offer.
Whereas the value of a regular option changes constantly based on the price of the underlying, binary options differ in that the payment is either a fixed amount or nothing at all.
For example, if you buy a binary call option for ZYX company with a strike price of $50 and a payoff of $500, when the option expires, if ZYX is trading at or above $50 per share, you get $500.
If it's not, you get nothing.
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