Pricing Dynamics of Binary Options Archives - Binary Option Strategy

Pricing Dynamics of Binary Options vs Traditional Options- Lesson 2

strike price pricing dynamicsWith everything being equal, generally, out of the money binary options are cheaper to buy than traditional out of the money options. This is due to the fact that the payouts for binary options are fixed when they expire in the money. Traditional options on the other hand, theoretically have an infinite payout amount. They also normally have greater “time value” than that of binary options.

How to Value Pricing Dynamics

This valuation difference between traditional out of the money options and binary options allow for:

  • The assumption of a quantifiable risk by the option seller.
  • For the buyer, he is able to obtain greater leverage for his capital as the premium investment is much lower.
Read More »