What Is Call Put Option?
“Bi” means “Two”. So, “Binary” means to consist of two parts â€“ call put option. Binary Trading refers to the fact that people trading on the financial and stock markets can take one of two options open to them. Once they have studied the market they wish to trade, they take a view on whether it is dropping or rising and then place a trade accordingly.
These trades are known as calls and puts.
This form of trading is a quick, easy and cost effective way of making money on the rise and fall of stocks, shares, forex and securities.
When a trader thinks a stock or security is going to rise in price, they will place a Call trade on the stock. They will then profit if the value of the instrument being traded does in fact rise.
The value the stock at the time the trade is placed is called the Strike Price. The trade is placed on the stock for a specified period of time and if the value of the stock is above the strike price at the end of the time period then the trader profits.
The Call option is similar what is known in trading as a Long trade or a Buy. Both these terms refer to strategies used by traders who think that the commodities they are watching are going to increase in price.
In some markets, the amount a trader will benefit by will be decided by how much the instrument traded has increased in price. With a Call option, the amount to be paid to the trader is predetermined and is paid out if the price is above or equal to the strike price. When this happens, the trade is referred to as being in the money.
If the price at the end of the trade is below the strike price then the trader receives nothing.
The Put option is the exact opposite of the Call option.
When a trader takes the view that the value of a stock or commodity is going to lose value, he will place a Put option. In essence, he is betting that the value of the stock will be lower than the strike price after a designated time. If this happens, then he will be paid out a specific amount that is determined when the trade is placed.
This is the similar to trading short in a bear market.
If the trader’s analysis and feelings about the market were incorrect or some event took place to change the way the markets were moving, then the price could well move the other way. If this happens and the price actually rises, then the trader will not be paid out.
The binary trading system is basically very simple and the call put option is the corner stones of the concept.
Diametrically opposed to the simplicity of the Put and Call concept is the vastness of the market that traders have access to. Options can be traded in currencies, commodities like gold, oil and anything that is traded around the world.