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The Cash or Nothing option is the most traded variant of binary options. Also known as, the “all or nothing” option does justice to its name. Trade with the cash or Nothing option is either successful or not. Binary options trading is not with real instruments, but rather represent a forecast on the future value and market development.

The price performance of the underlying asset and the market trends when trading binary options predicted by the investor. The Cash or Nothing option is employing either on rising or on falling prices. From this derives, therefore, logically, the “all or nothing” from, because this is the underlying principle of this option: If the investor is wrong with his assessment of the market, the option expires and the capital invested is lost.

He is right, however, and estimates the price performance of the underlying correctly, the cash or nothing option “in the money”. The investor receives now in advance specified fixed dividend. Situation is different in the asset-or-nothing option. The Cash or Nothing option is also available as an option with a fixed rate of return. This designation is only partially correct. Although the yield is fixed, but a guaranteed payout does not exist. The term cash or nothing also includes the possible risk of loss on an incorrect assessment of the market.

Market price and option strategy

The Cash or Nothing option, the forecast of the market development and thus the prediction of the future market price of the underlying asset. It represents the development of the course where the development of the market levels are crucial for the option strategy. The investor chooses the underlying on which it purchases the cash or nothing option. Then the decision is made for a long or short option.

Whether a put or a call option is purchased, depending on the expected market development. The option strategy of the buyer determines the form of cash or nothing option. The strategy of the investor depends on the expected market development. The rise or falling prices of the traded underlying determine whether cash or Nothing option is purchased as a buy or sell option.

The holder of the option speculating on a rise in the purchase option price. The buyer of a put option speculates however on a falling price of the underlying.

Binary Options are financial derivatives which are derived from the traditional options. They belong to the group of so-called exotic options. This is due to the fact that in addition to the many similarities with the classic version is a crucial difference. With binary options shall be underlying, strike price (exercise price) and run time in advance.

Traditional options offer, depending on the performance of the underlying a variety of possible payout amounts. The binary option /hence the name/ provide exactly two. When trading binary options, also known as digital options, have to estimate the market participants, the performance of the Underlying. He puts on a rising or a falling exchange rate? Goes from the buyer of a price increase, he buys a call option. He anticipates a decline, he buys a put option. If he guessed correctly, he gets a profit.

Binary Options: “Up / Down Options”

If the prognosis is correct, he will receive a prize. If it is wrong, he loses his bet. In this model, the binary options, one can distinguish between:

Cash-or-nothing: As with standard options and the underlying asset (e.g. a share), the strike price (exercise price) and run time is set. Moreover, a fixed payment amount is determined. If the price of the underlying at maturity is above the strike price, the investor receives the fixed payment amount. If the price is lower, he loses the premium paid.

Asset-or-nothing: The functioning of the cash-or-nothing option is very similar. Only the repayment amount is not fixed, but is the price of the underlying asset, if it is at maturity on the strike price. Otherwise, he loses the premium here.

Binary Options: “Touch Options”

The participant predicts that the price before the end of the expiry date reached a certain level or it is not achieved.

“One-Touch”: the price of the underlying reaches the outright level. The option will terminate immediately and the investor will receive the previously agreed payment. If the level is not reached during the term, it is no payment.
“Double-on-touch” and “Double-no-touch”: The market participant is not on one but on two levels. The payment will be made with proper prognosis of the underlying course.