In-the-money; Out-of-the money

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An option is defined by its type (call or put, but more on this on the next chapter) and the strike price. A call option is considered to be in the money when the strike price is below the spot price. The opposite is very much true, a put option is considered to be in the money when the strike price is above the spot price.

An out of the money call option implies a stripe price above the spot price at expiration, and an out of the money put option implies a strike price below the spot price at expiration.

In the case of binary options, an option is considered to be in the money if at the expiration date the price is higher than the initial price (in the case a call, for example, presuming price is going higher) and out of the money if, using the same example, the price is lower than the initial price you bought the call for. In case your option expiries in the money, you will be paid the potential payout you agreed upon from the beginning. If the options settle out of the money, the buyer or seller of the options receives nothing.

In other words, all the focus will be that at the expiration date of the binary option price to be in the money. Various brokers made trading binary options as a process quite easy, in the sense that the actual process is simple, so one will be showed step by step how to actually trade a binary option.

The recordings that come with this sub chapter will show you a couple of examples about what the in the money and out of the money means when actually trading a binary option.

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