Читать книгу Binary Options - Hamish Raw - Страница 11

The purchaser of a binary option, just like a conventional option, can only lose the amount spent on the premium. If Trader A paid 40 for an upbet at $1 per point then Trader A can lose a maximum of just 40 ¥ $1 = $40. But with a binary not only the loss has a maximum limit but the potential profit has a maximum limit also. So although Trader A’s loss is limited to $40, his profit is limited to (100 – 40) ¥ $1 = $60. As a general rule the profit and loss of the buyer and seller of any binary must sum to 100 ¥ $ per point.

In Figs 1.3.1 and 1.3.2 respectively Trader A’s and Trader B’s P&L profiles are illustrated. Both traders are taking opposite views on whether a share price will be above $101 at the expiry of the upbet.

In Fig 1.3.1 Trader A has bought the upbet at a price of 40 for $1 per point ($1/pt) so his three possible outcomes are:

1. Trader A loses $40 at any level of the underlying below $101.

2. At $101 the rules of this particular upbet determine a ‘dead heat’ has taken place and the upbet settles at 50 with Trader A making a profit of $10.

3. Above $101 Trader A wins outright and the upbet is settled at 100 to generate a profit of $60.