Cash-or-nothing option (call/put option)
The cash-or-nothing option is the classic binary option. It owes its name to its distinctive character, as the buyer of a binary option either makes a high profit or loses the capital invested. Due to this structure, binary options are said to have a bet-like character, as the all-or-nothing principle sounds like a 50/50 bet to many uninformed people. However, this is not actually the case, because with a sophisticated strategy and the appropriate analytical skills, traders can increase their chances of hitting the mark and thus be demonstrably profitable. Firstly, however, a basic understanding of the structure of the most important binary option is required.
How the options work
An option is a derivative on a specific underlying asset. They track the price movement and their purchase therefore has no influence on the price itself. Underlying assets in the sense of binary options can be the following in particular:
- Shares
- Bonds
- Raw materials
- Derivatives
- Indices
As with the classic option, there are put and call variants of the cash-or-nothing option. When buying a call option, the buyer assumes that the price will develop favourably in the near future. He determines a price level and a term before buying the option. The aim is for the price to be either at or above the targeted price threshold at the end of the term. If this is the case, the buyer can expect a return. The amount of the return varies depending on the provider. In most cases, this is 75-100%. There are also so-called high-yield options with a potential return of 500%. However, this is only issued if extremely unlikely events occur.
The put option, on the other hand, is based on a falling price trend. The buyer of this option assumes that the price will fall during the selected term. He merely has to determine a level that is more likely to be reached at the end of the term. The returns for both options are similar and vary between the different providers.
The differences between the options
In the case of cash-or-nothing options, there is another feature that can be used to differentiate between options. The distinction is that
Conclusion
Simone Aescher is the founder and operator of the successful crypto blog aescher-ai.ch.
After studying business administration at the Frankfurt School of Finance, she gained over 5 years of professional experience in the financial sector. However, her passion has always been the financial markets and investments.
In 2019, Simone Aescher finally turned her hobby into a career and founded her blog. She shares her in-depth knowledge of shares, ETFs, cryptocurrencies and much more.
As an active trader, Simone is constantly testing new brokers, robo advisors and trading apps. With her honest product reviews, she helps her readers to separate the wheat from the chaff.
With her academic background, many years of experience and practical expertise as an investor, Simone Aescher combines the ideal prerequisites for competently analysing and evaluating the financial markets.