How do CBOE Binary Options Function?

BinaryOptionsNow | Published on August 30, 2011 at 3:36 pm

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BinaryOptionsNow – This article examines the details of Chicago Board Options Exchange (CBOE) binary options. The article specifically discusses the dynamics of the “BSZ” asset which is an index binary option linked to the value of the S&P 500 stock market index.

Learning more about CBOE binary options – the first binary options made available for purchase to retail investors – is a great way to better understand how online binary options function.

CBOE Binary Options are contracts that have an “all-or-nothing” payout depending on the settlement price of the underlying broad-based index relative to the strike price of the binary option.

1) a fixed cash settlement amount, if the underlying index settles at or above the strike price at expiration; or

2) nothing at all, if the underlying index settles below the strike price at expiration.

1) a fixed cash settlement amount, if the underlying index settles below the strike price at expiration; or

2) nothing at all, if the underlying index settles at or above the strike price at expiration.

Underlying asset:
The CBOE binary options are issued for the S&P 500 Index (SPX).

Symbol:
BSZ

Multiplier:
$100 – This is the payout of each binary option contract. So, one successful binary call option pays out $100 and 10 successful binary call options pay out $1,000.

Strike Price Intervals:
Strike prices may be listed with a minimum interval of 5 points.

Strike (Exercise) Prices:
In-, at- and out-of-the-money strike prices are initially listed. New strikes may be added as the underlying index moves up or down and upon request.

Premium Quotation:
Bids and offers will be expressed in pennies, and will range from 0.00 to 1.00. The total value of S&P 500 Binary Options will be the bid/offer multiplied by the contract multiplier. The minimum tick for S&P 500 Binary Options will be 0.01 ($1.00).

Expiration Date:
Generally, the Saturday following the third Friday of the expiration month.

Expiration Months:
Initially, only three (3) consecutive near-term contract months will be listed.

Exercise Style:
European – S&P 500 Binary Options may be exercised only on the last business day prior to expiration. Writers are subject to assignment only at expiration. Automatic exercise for S&P 500 Binary Call Options occurs if the exercise-settlement value of the S&P 500 Index equals or exceeds the S&P 500 Binary Call Options strike price.

Last Trading Day:
The business day (usually a Thursday) preceding the day on which the exercise-settlement value for S&P 500 Binary Options is calculated.

Settlement Value:
The exercise-settlement value for S&P 500 Binary Options will be the same as the exercise-settlement value (“SET”) for S&P 500 Index Options. SET is calculated using the opening reported sales price in the primary market of each component stock on the last business day (usually a Friday) before the expiration date.

The exercise-settlement amount for S&P 500 Binary Call Options will be 1) $100, if SET is equal to or greater than the S&P 500 Binary Call Option strike price; or 2) $0, if SET is less than the S&P 500 Binary Call Option strike price.

Position Limits:
The position limit for S&P 500 Binary Options is 1,500,000 contracts on the same side of the market.

Margin
Purchases of S&P 500 Binary Options must be paid for in full. Customer margin for uncovered writers is the difference between the fixed cash settlement amount and the proceeds received from the sale of the S&P 500 Binary Option.

Trading Hours:
8:30 a.m. to 3:15 p.m. Central Time (Chicago time)

Source: CBOE

Click here for realtime data on CBOE binary options

 

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