A stock option is a contract between the buyer & the seller that provides the buyer & the seller the right but not the obligation to buy or sell a particular asset at a certain determined time or price. It is basically a speculator type option contract comprising a definitive cash reward or payout. The reward is handed out if the market price of the underlying stocks reaches a specific level upon the expiration time of that stock. If the value of the stock does not reach a specific level upon the expiry time then no payoff is given out.
As has been mentioned before, the stock options provide the buyer & the seller with a non-compulsory right to buy or sell a number of shares of a specific stock at a specific price before a predetermined date. However with binary stock option a trader does not need not buy or sell the stock at the expiration. He has to just guess the trend the value of the sticks might take within the expiration period. Therefore, there can only be two possible outcomes. Either the trader gets it right with his prediction or he does not. If he gets it right then he will get the sum of money agreed upon at the time of entering the contract. If the trader gets it wrong then he would lose the money he invested at the time of the contract.
Trading binary stock options does have some risk of its own since the investor might lose the money he invested in the binary stock option. But then again the reward he may get if he gets it right can be pretty high. If the contract ends “in the money” then the trader might get up to a 70% return on his investment.
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September 4, 2011 | by John Greener |