Binary Trading Binary Options Types and Structures 1 — Questions and Answers
Question 1: What is a 'Call' option in binary trading?
- An option that profits when the asset price rises above the strike price at expiry (Correct answer)
- An option that profits when the asset price falls below the strike price at expiry
- An option that pays out when the asset touches a specific price level
- An option that pays out when the asset stays within a price range
Correct answer: An option that profits when the asset price rises above the strike price at expiry
A Call option in binary trading is profitable when the underlying asset's price closes above the strike price at the time of expiry.
Question 2: What does a 'Put' option represent in binary trading?
- A prediction that the asset price will rise above the strike price
- A prediction that the asset price will fall below the strike price at expiry (Correct answer)
- An option that requires the price to touch a target level
- An option where you can exit early for a partial refund
Correct answer: A prediction that the asset price will fall below the strike price at expiry
A Put option profits when the underlying asset's price closes below the strike price at expiry, representing a bearish prediction.
Question 3: Which binary option type pays out if the asset price touches a specific target level at any point before expiry?
- High/Low option
- Boundary option
- One Touch option (Correct answer)
- No Touch option
Correct answer: One Touch option
A One Touch option pays out as soon as the asset price touches the predetermined target level at any point during the option's lifetime, before expiry.
Question 4: What is a 'boundary' or 'range' binary option?
- An option that pays out based on how far the price moves
- An option that profits if the price stays within or exits a defined price range at expiry (Correct answer)
- An option that requires the asset to hit both an upper and lower boundary
- An option based on the spread between two assets
Correct answer: An option that profits if the price stays within or exits a defined price range at expiry
A boundary (range) binary option pays out if the asset price either stays within (in-range) or breaks outside (out-of-range) a specified price corridor at expiry.
Question 5: In a 'High/Low' binary option, what must happen for a 'High' (Call) trade to expire in the money?
- The asset price must touch a specific high level during the trade
- The asset price must close higher than the strike price at expiry (Correct answer)
- The asset price must reach an all-time high
- The asset price must close higher than the previous day's close
Correct answer: The asset price must close higher than the strike price at expiry
In a High/Low binary option, a High (Call) trade is in the money when the asset's closing price at expiry is above the strike price set at the time of purchase.
Question 6: What is the maximum possible profit structure on a typical binary option trade?
- Unlimited, depending on how far the price moves
- A fixed percentage of the investment, predetermined before the trade (Correct answer)
- Equal to exactly twice the investment amount
- Determined by the broker's spread at expiry
Correct answer: A fixed percentage of the investment, predetermined before the trade
Binary options offer a fixed, predetermined payout percentage (typically 70–95% of the investment) regardless of how much the price moves in your favor.
Question 7: What does 'Out of the Money' (OTM) mean for a binary option at expiry?
- The option has not yet expired
- The trade has been cancelled by the broker
- The asset price did not meet the condition required for a payout at expiry (Correct answer)
- The option was exercised before expiry
Correct answer: The asset price did not meet the condition required for a payout at expiry
Out of the Money means the trade's conditions were not met at expiry (e.g., for a Call, the price finished below the strike), resulting in the loss of the invested amount.
Binary Trading Binary Options Types and Structures 1
What is a 'Call' option in binary trading?