Binary Option

Usually a European style option, a binary option has only two outcomes: where the payoff is either some fixed amount of some asset or nothing at all. Two versions of this include the cash-or-nothing, which pays some fixed amount of cash if the option expires in the money and secondly, the asset or nothing which pays the value of the held security. Also known as all-or-nothing options, digital options and Fixed Return Options (FROs).

When buying a binary option, an investor knows the potential return because it is certain and known before the purchase is made. These options can be bought on many financial products with a call or put option. Binary options have a fixed expiration time anywhere from 5 minutes to half an hour in the future, an hour ahead or at the close of the trading day.