Binary Options are Here to Stay

September 16, 2017 03:02 PM

Equity Binaries 

Both Nadex and Cantor are regulated by the CFTC, but more recently the NYSE has moved into binaries with Binary Return Derivatives (ByRDs), which are binaries listed on underlying equities and exchange-traded funds. Because of this, they are regulated by the Securities and Exchange Commission and must be intermediated. Currently, there is one brokerage platform, Ally Invest, which recently bought Trade King, that offer ByRDs. 

The market, which launched in March 2016, is targeting mostly retail investors who want to generate income with known risk. Contracts are valued at $100 and are listed five weeks out, expiring every Friday. 

An added complication is that contracts are settled to the volume-weighted average price, which can vary more in value than the actual underlying settlement. 

It is an easier product to understand and trade than regular equity options. It is a limited risk/limited reward product that can generate income with known risk. Like all binaries there is no leverage invovled. There is no risk of buying stock or selling stock. There is no tax implication of selling stock. 

ByRDs are just getting started and have their own unique challenges, but they benefit from previous binary markets. 

Binary options offer a simpler way to speculate on a known market or create a new market based on their simple metrics. Every trade can be broken down to a “yes” or “no” question with precise odds based on a value from zero to 100. They appear to have come of age.   

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About the Author

Editor-in-Chief of Modern Trader, Daniel Collins is a 25-year veteran of the futures industry having worked on the trading floors of both the Chicago Board of Trade and Chicago Mercantile Exchange.