Different Types of Binary OptionsThere are different types of binary options that traders can choose to limit their risk.  The three basic types of binary options are:

  • In the Money Binary Options
  • At the Money Binary Options
  • Out of the Money Binary Options

Each one is discussed below.

Different Types of Binary Options

Below is the Market Strike list for the USDJPY.   The strike statements begin at the top, 111.04 and go down to 110.68.  Notice there is a four pip width between each strike (111.04 and then the next one is 111.00 and so on).

  • In the Money Binary Option (aka ITM) – is easily identified because price is either trading above this strike, if buying, or below this strike, if selling.  To be considered ITM, there should be a minimum of one strike between where price is currently trading and the ITM strike.  Using the Market Strike list, the ITM options would be:
    • If a trader was looking to buy an ITM strike (buying an ITM call), the options would be:
      • USD/JPY > 110.80 risk $75
      • USD/JPY > 110.76 risk $85.75
    • If a trader was looking to sell an ITM strike (selling an ITM put), the options would be:
      • USD/JPY > 111.00 risk $83.25
      • USD/JPY > 110.96 risk $73
  • At the Money Binary Option (aka ATM) – is easily identified because this is the strike where price is currently trading and typically has about $50 of risk.
    • In this example, the closest strike to $50 is the 110.88 strike.  To buy the strike (buying a call), the risk would be $47.75.  To sell the strike (selling a put), the risk would be $58.50.
  • Out of the Money Binary Option (aka OTM) – The OTM strike will have less than $50 of risk typically.  If buying the OTM strike, price will be trading at least one strike below the OTM strike.  If selling, price will be trading at least one strike above the OTM strike.
    • If a trader was looking to buy an OTM strike (buying an OTM call), the options would be:
      • USD/JPY > 110.92 risk $34.25
      • USD/JPY > 110.96 risk $23
      • USD/JPY > 111.00 risk $14.50
      • USD/JPY > 111.04 risk $9.00
    • If a trader was looking to sell the OTM strike (selling an OTM put), the options would be:
      • USD/JPY > 110.80 risk $31
      • USD/JPY > 110.76 risk $20.50
      • USD/JPY > 110.72 risk $12.75
      • USD/JPY > 110.68 risk $8.00

Different Types of Binary Options

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