Binary options are instruments that are characterized by their simplicity and high profits, which has led to a surge in popularity that extends each day. Most known regular binary options, known as digital options which normally are associated with these financial derivatives transactions. However, binary options brokers offer other types of binary options that any trader should know as they may offer a variety of opportunities.
The main types of binary options are:
Regular binary options or High / Low
Also known as Above/Below options, this is the most common and popular type of binary option. All binary options brokers offer this type of option which is synonymous of the transactions with these instruments. Basically, the trader must predict whether the price of the underlying asset will finish above or below the strike price of the option (the underlying price at which it was purchased the binary option). In other words, the trader just have to predict whether the market will go up and down and not how far. The payout of this options can be of 70% to 90% of the option premium.
One Touch Binary Options
In One Touch binary options the trader must determine a target or barrier (the strike price of the option) which must be touched in a specific time period (expiration period) for the price of the underlying asset. This time period is determined by the broker, although in some cases the trader can pick. The payout of these options depends on the level at which the barrier is located and the maturity of the option, and can reach up to 500% or more. In this case, the option is settled once the underlying price reaches the barrier.
No Touch Binary Options
It is a variant of the One Touch binary options, but in this case the option expires In The Money and produce gains only if the underlying asset price NEVER reach the barrier during the lifetime of the contract. When this option is purchased, the trader sets the profit obtained if – and only if-, the underlying price does not reach the specified price (the strike price) during a period of time (expiration period). For each price level that should not be reached, the broker provides the potential benefit. The farther away the target price, the lower the profit potential, as there is a greater likelihood that the underlying asset will not touch the strike price.
Double One Touch Binary Options
These are binary options that have two exercise prices that define a price range. These options offer a fixed benefit if one of two strike prices is reached before the option expires. In the moment the price reaches one of these levels, the option is settled immediately. Double One Touch Binary Options offer a fixed payment if the underlying asset price reaches one of the exercise price before expiration. Typically, these options are used when traders expect highly volatile market conditions, but also do not know the future direction the market.
Double No-Touch Binary Options
The Double No-Touch options are the opposite of Double One Touch options. These contracts share common characteristics like having two exercise prices that define a range and the fact that are intermediately settled if one of the exercise price is reached before the expiration of the option. This option type has a fixed payout if the underlying price remains within the price range and does not touch at any time any of the strike prices. These options are purchased when a market moves in a narrow range and when relatively low volatility is expected. In general, Double No-Touch Binary Options can produce good profits during periods of consolidation which usually follow the markets after major moves.