Binary Options Trading Strategies | Investing

A binary option is an especially short term, high yield investment. The duration of a binary option is less than a day, and sometimes less than an hour. I've made a little chart describing how binary options differ from standard (American) options. If you are reasonably familiar with options trading then you ought to be able to intuitivily ration out the differences between the two.

Standard Options
Expire on 3rd Friday of Month of Contract

Can be executed anytime prior to expiration (American options only)

Have a variable payout based on the underlying stock price

Payout only when "in the money"


Contracts can be traded any time prior to expiration

Contracts are measured in underlying shares

Contracts do grant "right to buy" underlying security


Size of the movement of underlying stock price matters


Risk exposure can be unlimited

Broker can require additional collateral

Binary Options
Expire hourly


Can't be executed prior to expiration

Have a fixed payout


Payout whether "in the money" or not

Contracts are not traded in a secondary market

Contracts are measured in dollars, not in shares

Contracts do not grant "right to buy" underlying security

Only the direction of the underlying stock price matters

Risk exposure is fixed

No collateral needed

Binaries are an extremely simplified form of investment used by day traders. The contract is executed with your broker who (depending on who you use) may have the contract expire hourly or at the end of the day. It is typically available only on the most highly liquid securities and indices such as the S&P 500.

Brokers vary, but a good one (like one of these binary options brokers) will offer zero spread, zero commission contracts. The sponsored link above usually offers generous bonus cash for new deposits as well, encouraging investors to trade with other people's money first rather than risking their own capital.

Personally I think the bonus cash is a nice touch. Learn more about all this stuff at Make $300 a Day - a Binary Option Blog