Binary option

A binary option (also: digital option ) is a derivative financial instrument that is derived from options, one of the most exotic options and belongs to the category of transactions.

For binary options, only two scenarios can occur: If an previously defined event, the buyer receives a fixed amount, otherwise the option expires worthless. Suitable underlying assets - as with classical warrants also - indexes, stocks, currency pairs or commodities in question. It can then be speculated on falling or rising prices.

As with classical warrants exist binary buying and selling options in American and European version.

The cash-or -nothing option showered at maturity of a predetermined amount, while the asset - or-nothing option pays the price of the underlying asset or these andient itself.

Variants

This is

• X for the price of the underlying and
• T for the threshold of the binary option.

For American options, the following applies: the event must occur during the term. For European options, the event at maturity must occur.

Review the Black- Scholes model

Related to the " Greek" classical Warrants

Since a binary, European knock-in call or put option will be paid if they listed during or at the end of the term in the money equivalent to their normalized price - ie, the price of a payout unit - the probability for this event. Thus, their price behavior is the same as the delta of a classic warrant.

The value can be interpreted and calculated using the Black- Scholes model as the first derivative of the option price on the base price:

Or for put options

Is

• Φ ( · ) is the distribution function of the standard normal distribution,
• K is the strike price of the option,
• R is the risk-free interest rate and
• T the life of the option.

Binary options trading

2007, the U.S. Options Clearing Corporation proposed to allow these options. The Securities and Exchange Commission has subsequently allowed cash -Or - Nothing binary options in 2008. Since May 2008 provides the American Stock Exchange ( Amex ) European cash- or-nothing binary options on. Also at the Chicago Board Options Exchange ( CBOE ) they are traded since June 2008. The standardization of binary options is the basis for trading on the American Stock Exchange with current quotation of the price.

Binary options are also offered in OTC OTC trading. In Cyprus and Malta, these products were already regulated by the financial authorities. The two countries are the first that govern binary options as financial instruments as defined by EU Directive MiFID law. In Malta, binary options were previously the responsibility of the gaming authority.

The Banc De Binary is one of the off-market sellers of these products, based in Cyprus. In the United States currently runs a case against the bank, in the investigated whether the bank violates the regulations on the U.S. financial market. It examines, among others, the accusation that the Banc De Binary does not collect data on financial circumstances and experience of the trader.