All About Binary Option Expiry Times
If there is one thing an option trader should know and understand, it is how expiry times work. After all, a trade lives or dies – literally – on the expiry date, and that determines whether or not your trade finishes in the money or costs you most of your investment. Knowing all about expiry times is one way to learn option trading like a pro.
This article will help you learn option trading by thoroughly understanding how expiry times work and how they impact your binary options trade – and also how they vary from option brokerage to option brokerage.
What are Expiry Times?
To understand expiry times, it is necessary to understand how binary options work in general. Binary option trading involves making a choice of what an asset’s value will do – generally speaking, whether it will go up or down by a certain time, or expiration. If you put in a ‘Call’ option on an asset, say, a stock, and the stock’s value goes up by a certain period of time, you finish in the money and receive a fixed payout.
And if you guess wrong, you are usually given a small amount as a guaranteed return.
There are several different types of binary options in binary options trading, and several ways to make money. The common denominator is the expiry time. Every option has an expiry time, or a deadline for the trade to be fulfilled. But, what the expiry time means depends on what type of trade you are making.
What the Expiry Time Means
If an option trader is making a standard trade, he or she is betting that an asset’s value will rise or fall above a certain current price by the expiry date. This means that at expiration, the value must be above the strike price at expiration for a call, or below the price at expiration for a put.
This doesn’t change based on how long the trading time period is; an expiry for one hour means the same as an expiry for a week. So, for standard digital options, your asset has to be above or below at the expiry.
For touch or boundary binary options trading, your asset has to touch or exceed a particular price at least once before expiry – but does not have to be above or below that mark at expiry. For example, say an option trader at a given option brokerage places a Call trade with the stock currently at 100. The touch price is 110, and the expiry is 6pm. The stock goes up to 111, but falls back to 100 before 6pm comes around.
In this binary options trading example, this would mean that the trader would be in the money. Knowing how expiry times differ with various types of options out there is critical and is one of the first things to understand when you learn option trading.
Be sure to look at how long the expiry time is, too, since the longer expiry times can be risky. Shorter expiry times may not pay out as much, but they are generally safer.