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Binary option

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Binary option
Unlike simple options, which have continuous pay-out profiles, that of a binary Option is discontinuous and pays out a fixed amount if the Underlying satisfies a predetermined Trigger condition but nothing otherwise. Binary options are also known as digital or all-or-nothing options. There are two major forms: at maturity and one-touch. At maturity binaries, also known as European binaries or at expiry binaries, pay out only if the Spot trades above (or below) the Trigger level at expiry. One-touch binary options, also known as American binaries, pay out if the Spot rate trades through the Trigger level at any time up to and including expiry. The pay-out of a one-touch binary may be due as
soon as the Trigger condition is satisfied or alternatively at expiry (one-touch immediate or one-touch deferred binaries). As with barrier options, variations on the theme include discrete binaries, stepped binaries, etc. Binary options are frequently combined with other instruments to create structured products, such as contingent Premium options.
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