The low option in binary options trading, also known as a Put Option, refers to predicting that the price of an asset will decrease within a specified time frame. This option is the opposite of the high option, where traders bet on a price increase.
To select a successful low option, traders need to analyze whether the price of a given asset will increase or fall. If they anticipate a decrease in value, they can choose the ‘low’ option by placing a put option.
Low Option in a nutshell
- The Low Option in binary trading predicts a decrease in asset price within a set time frame.
- Outcome scenarios vary: winning yields a fixed payout, while losing results in total investment loss.
What’s the concept of Low Options in binary trading?
In binary trading, the concept of low options is all about predicting the direction of the trade. Similar to high options, traders need to analyze whether the value of a chosen asset will fall below a certain price level within a certain time frame. Essentially, the aim is to predict whether the price will fall or stagnate. This prediction comes with the potential for significant profits or the risk of losing the amount invested.
Example: How to trade Low Options?
To trade low options, at first, traders have to select an asset before predicting its price movement within a specific time frame.
- Selection of Asset: Traders begin by selecting an underlying asset, which could be a stock, commodity, currency pair, or index.
- Prediction: Through thorough market analysis and consideration of indicators, traders predict whether the price of the selected asset will decrease within the designated timeframe.
- Purchase: If the trader anticipates a decline in the asset’s value, they opt for a Low Option.
- Expiration: Each option comes with a predetermined expiry time. At expiration, if the price of the asset is lower than the strike price (the price at which the option was purchased), the trader receives a fixed payout, usually a percentage of the initial investment. However, if the price remains equal to or higher than the strike price, the trader loses the invested amount.
Let’s consider a scenario involving low options in binary trading with Pocket Option as the broker and the asset being the Apple stock.
Suppose a trader decides to invest $200 in a low option trade with an expiry time of 5 minutes and a strike price of 180.774 for the Apple stock. The trader predicts that the price of the Apple stock will decrease within the specified timeframe. With this anticipation, they purchase the low option.
What are the outcome scenarios of a Low Option?
There are two outcome options for a Low Option – win and lose. Let’s go back to the example:
- Win: As the expiry time approaches, if the price of the Apple stock indeed falls below the strike price of 180.774, the trader will receive a fixed payout of 92% of the invested amount. In this case, if the prediction holds true, the trader would earn $184 (92% of $200) in profits.
- Lose: If the price of the Apple stock remains equal to or exceeds the strike price at the expiration time, the trader would lose the entire $200 investment.
The low option is a part of binary options trading just as high option. You can win any given trade by choosing a low option if you believe its price will decrease from its spot price.
Read other important articles in the binary glossary.