At The Money (ATM) Binary Options

At The Money Binary Options

In binary options trading a trader must predict the price movement of an asset in the market during a predetermined period (the expiration period or maturity). When the time of option expiration arrives, it can produce only one of three possible outcomes for the trade.
If the price of the underlying asset moved in the direction predicted by the trader, then the option will have expired In The Money (a winning trade). But if the asset price moved in the opposite direction, the option will have expired Out The Money (a losing trade). However, it is said that a binary option has expired At The Money when the option value ends at the same level as the original exercise price (strike price) once the maturity of the transaction occurs. For the trader, an option that expires At The Money results in an operation that does not generate profits or losses as it is considered that the option did not end in the gains zone or the loss zone. In other words it is a transaction that ended in a "tie".
However, there are brokers that handle binary options At The Money like options Out The Money, ie as losing trades. The reasoning is that since the trader must select one of two options -call or put- based on a possible rise or fall in the value of the asset, a result indicating that there was no movement in the underlying price means that the trader has incorrectly predicted the outcome of the operation.

Example of a binary option that expires At The Money

For example, if a trader places a Call Binary Option  of 1 hour at 14:00 based on the stocks of BNP Paribas (which value at that time is €43.00), the option will expire At The Money if the stock ends with the same value (€ 43.00) at the time of maturity at 15:00. In this case, the operation produces no gain or loss since the price has not finished up (as predicted by the trader) or down (in which case the trade would have ended The Money Out).

Note that if the value of the stock would have closed at €43.01 or more at 15:00, the option would have expired In The Money and the trader would have made ​​a profit.



TAG