Binary Options

Binary options are a financial product available in many jurisdictions and mostly facilitated through online portals and platforms. Binary Options receive a significant number of complaints from consumers and are often provided through unregulated platforms to consumers who may not be sophisticated enough to understand the risk profile. Unlike a typical option contract where a holder will typically have the right to exercise the option or let it lapse after payment of the premium at the contract inception, the Binary Option is a ‘yes or no’ product. In effect, for a given scenario it either pays out, or it doesn’t and has an initial cost to purchase it. Typically, the payout profile is 100% loss if the option expires out of the money and a proportional gain if it is in the money based on the underlying. In neither case is there any right to actually acquire the underlying exposure (e.g. the shares in the index being betted against). A typical investment proposition might be that ‘The Price of Amazon’s Shares will be above $150 at 2:30pm on the 16th February’. If the price is above $150 the option automatically exercises at the associated payout ratio, if it is below then the holder will receive nothing at all (and will have lost the premium). The SEC and other regulators have provided detailed factsheets around the risks of Binary Options which can be viewed via simple web searches, and may illustrate some of the concerns of the product