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Binary Put Options

A binary put option is the name that is given to a particular kind of binary option contract that gives the trader a specified amount if the underlying asset falls below the strike at the time of expiration. The binary put options are also known as down beats. These are all or nothing options that normally settle at about 100 if the contract expires in the money or at zero if the contract expires out of the money. In essence, it is a kind of contract that provides the user with a specific amount of money when the security falls below the strike price when the contract expires. Traditionally, this kind of contract helps the trader to identify a particularly bearish market.

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Often, binary put options are placed side by side with call options. These are the exact opposite of the put options. In the call option, the trader takes the view that the price of a particular security will rise upon expiration. The difference in these two strategies is the main platform on which the trade of binary options is based.

When should traders invest in binary put options  ?

There are a number of instances in which a trader is advised to take the binary put options. Some of these include: when the market is bearish, which makes the securities very volatile in the market. The idea behind such volatile markets is that the prices of the currencies, stocks and indices tend to fall and rise at virtually unrestrained fashioned. As such, the traders need to be very aware of these movements in the market. Since the market is volatile, the prices of securities tend to experience a lot of turnarounds. It is this kind of movement that traders need to be aware of.

You can also invest in the binary put options when you are trying to limit the kind of risk that the market offers. Since the put option contracts respond better to volatile situations, then this would be the best kind of contract for such a situation. In such cases the price of binary put options is often interpreted as the probability that the underlying price will be low, assuming zero cost-of-carry. The result of this kind of trading in binary option is an equation of the following manner: Binary Put Options Fair Value = 100 – Binary Call Option Fair Value.

What are the advantages of choosing the binary put options over the other types of contracts? To start with, most of the traders on this platform are a little uncomfortable when it comes to the idea of shorting financial instruments. In addition, the binary put options often provide for slightly less work in calculation.

Put options are just one of the contracts that brokers on the binary options market provide to their client. It provides the traders with a real opportunity to make some money on these platforms. It is a strategy that can be used in making proper money, something that every trader seeks out for.

Recommended Reading

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