Put and Calls
The knowledge of the put and call options are the key to understanding the way that the workings of the binary options. As such, it is important that you understand exactly how these two options operate.
A call option is a contract that gives the user the right to buy a given stock option at a particular price within a specific period of time. This type of contract is the exact opposite of the put options. The put options are the contracts that allow the holder to sell a given stock option at a specific price and within a defined period of time. In essence, these are types of privileges or options, which continue to add to the flexibility of the securities market. In return for this kind of privilege, the trader is required to make some sort of payment in they form of a commission
The main difference between the call options and the put options is that call options are taken out by investors who expect a rise in the price of the underlying asset and would like to profit from that. On the other hand, the put options are taken out by investors who profess a grim picture of the market and therefore expect the price to go down. A call option that expires in the money is one in which the price of the underlying asset has risen above the strike price and expired at a price either at or above the strike price. In the same vein, a put option that expires in the money is one whose expiry time finds the price lower than that of the strike price. For instance, if you expect that the price of the US dollar will drop in relation to the British pound, then you will be better off taking out the put option. However, if you are of the view that the price of the US dollar will rise in relation to the British pound, then you will take out a call option in the same regard.
Put and call options can be taken out for virtually any duration of time. However, binary options are normally taken out for short durations of time and as a result the longest duration of time that the put and call options are normally taken out for is 1 month. Even though, some people have been known to take out put and call option for up to 6 months. Some investors also take out the put and call options at the same time in a bid to reduce their risk and increase the profit margins. This strategy is called hedging and it is designed to get the best of both worlds in a binary option platform. It is especially useful in volatile markets. In these markets, the final result is not often clear and as such, traders may choose to speculate on both ends.
From the very start, it was pointed out that the knowledge of put and call options is what keeps the binary options platforms running. This knowledge is what can make you profits on binary options trading.