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Author: Admin | 2025-04-28
EUR/USD>1.2375 is quoted at 60.00/66.00. Since you are bearish on the euro, you sell this option. Therefore, your initial cost to sell each binary option contract is $40 ($100 - $60). Suppose you sell 10 contracts and receive a total of $400. At 3 p.m. on Friday, the euro is trading at 1.2400. Since the euro closed above the strike price of $1.2375 by expiration, you would lose the full $400, or 100% of your investment. What if the euro had closed below 1.2375, as you expected? In that case, the contract would settle at $100, and you would receive $1,000 for your 10 contracts, for a gain of $600 or 150%. Basic Strategies 1) If the exchange allows non-European binary options, you do not have to wait until the contract expires to realize a gain on your binary option contract. Let's say that on Thursday, the euro is trading in the spot market at 1.2455, but you are concerned about a decline in the currency if the U.S. economic data released on Friday is positive. In this case, your binary option contract (EUR/USD>1.2425), which was quoted at 49.00/55.00 at the time of your purchase, is now at 75/80. Therefore, you could sell the 10 option contracts you bought at $55 each for $75 and book a total profit of $200 (or 36%). The CME doesn't permit this kind of trading: once you buy an event future, you must hold it until expiry. 2) You can also combine trades for lower risk/lower reward. Assume your view is that volatility in the Japanese yen—trading at 118.50 to the dollar—could increase significantly, and it could trade above 119.75 or decline below 117.25 by Friday. Therefore, you buy 10 binary option contracts (USD/JPY>119.75, trading at 29.50/35.50) and also sell 10 binary option contracts (USD/JPY>117.25, trading at 66.50/72.00). Therefore, you pay $35.50 to buy the USD/JPY>119.75 contracts and $33.50 (i.e., $100 - $66.50) to sell the USD/JPY>117.25 contracts. Your total would be $690 ($355 + $335). There are three possible outcomes: The yen is trading above 119.75. In this case, the USD/JPY>119.75 contract has a payout of $100, while the USD/JPY>117.25 contract expires worthless. Your total payout is $1,000, for a gain of $310 (or about 45%).The yen is trading below 117.25. In this case, the USD/JPY>117.25 contract has a payout of $100, while the USD/JPY>119.75 contract expires worthless. Your total payout is $1,000,
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