# Digital call option payoff diagram

The payoff is, usually, a fixed amount of cash or the value of the asset. The position turns profitable at break-even underlying price equal to the sum of strike price and initial option price. All information is for educational purposes only and may be inaccurate, incomplete, outdated or plain wrong. Extending our model to price binary options Published on 30 Aug 13 monte-carlo options exotic Our model of pricing European options by Monte Digital call option payoff diagram simulations can be used as the basis for pricing a variety of exotic options.

The position turns profitable at break-even underlying price equal to the sum of strike price and initial option price. If the option expires out of the money, the trader loses his initial investment. All information digital call option payoff diagram for educational purposes only and may be inaccurate, incomplete, outdated or plain wrong.

How often does my trades need to be successful in order to be consistently profitable in the long run when trading binary options? We will look at: The payoff is, usually, a fixed amount of cash or the value of the asset.

Home Calculators Tutorials About Contact. A call option gives you the right, but not obligation, to buy the underlying security at the given strike price. Binary options can also be priced using the traditional Black Scholes model, using the following formula:. Initial cash flow Cash flow at expiration Initial cash flow Digital call option payoff diagram cash flow is constant — the same under all scenarios. Binary options A binary option also known digital call option payoff diagram an all-or-nothing or digital option is an option where the payoff is either some amount or nothing at all.

One other thing you may want to calculate is the exact underlying price where your digital call option payoff diagram call position starts to be profitable. For our simulation, we're going to look at cash-or-nothing binary options. It is the sum of strike price and initial option price. By changing how we generate asset prices and how we assess an option's payoff, we can generate prices for some exotic options.

Of course, with a long call position the initial cash flow is negative, as you are buying the options in the beginning. It is the same formula. How to Select a Binary Options Broker?

By purchasing a basic binary call digital call option payoff diagram, the trader is simply speculating that the price of the underlying asset will be higher than the current market price when the option expires, typically within next few minutes or several hours. Tutorial 1 Tutorial 2 Tutorial 3 Tutorial 4. Finally, this is the scenario which a call option holder is hoping for. This simulation can be thought of generically like:

The minimum and maximum he can put in with each call option varies across brokerages. The position turns profitable at break-even underlying price equal to the sum of strike price and initial option price. Maximum possible digital call option payoff diagram is equal to initial cost of the option and applies for underlying price below than or equal to the strike price. The payoff is, usually, a fixed amount of cash or the value of the asset. The key variables are:

Buying a call option is the simplest of option trades. It is a product of three things:. If you don't agree with any part of this Agreement, please leave the website now. Binary options A binary option also known as an all-or-nothing or digital option is an option where the payoff is either some amount or nothing at all. You should never invest money that you cannot afford digital call option payoff diagram lose.