What are Knock In Binary Options? – Definition & examples

Knock In Binary Options are a specific type of binary option that become active only when the prices of the underlying assets reach predetermined levels before the options’ expirations. These options are classified as barrier options in the area of binary options trading.

As their activation depends on the price of the underlying reaching a certain level, these options offer flexibility, affordability and increased profit potential.

Knock In Binary Options in a nutshell

  • Knock In Binary Options activate when underlying asset prices reach predetermined levels before expirations.
  • These options fall under barrier options in binary options trading.
  • Six types include Down and In Binary Call, Up and In Binary Call, and others.

Types of Knock In Binary Options

There are six knock-in binary options, each determined by the relationship between the strike price (K) and the barrier, consisting of three down barriers and three up barriers.

The list of Knock In binary options includes:

Understanding Knock In Binary Options

For knock-in binary options to turn into a binary call, binary put, or one-touch binary put, a barrier must be hit. The strategy is settled at zero unless the barrier is reached by expiration. Thus, the underlying price must fall below the barrier for it to be triggered.

The holder is then rewarded with a binary call option if he is long in the downside move and in the binary call.

As with other barrier bets, these strategies require a higher management level due to the constant underlying monitoring. 

A down and in-call gain value as the underlying approaches the barrier, which requires close monitoring in knock in binary options as the directional risk changes at the barrier. However, when the barrier is touched, the value of the following binary call option decreases as the price of the underlying continues to fall. The value of the binary call option increases when the underlying asset bounces off the barrier.

Read more important articles in my binary options glossary.

About the author

Percival Knight
Percival Knight is an experienced Binary Options trader for more than ten years. Mainly, he trades 60-second trades at a very high hit rate. My favorite strategies is by using candlesticks and fake-breakouts

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