February 9, 2016

What Are Binary Options?

I know only a little about stock options.   Generally you can buy an option to purchase or sell a stock at a future point.   I have had options at work granted to me by my employer.  They allowed me to buy my our company stock for a set value, say $20, and then if the stock went up I'd be making money.   So when I hear about Binary Options, I think this is some fancy way to invest in stocks.   Nope...

Read this article at Forbes : Don't Gamble On Binary Options

They do a good job explaining that binary options are really just a form of gambling.

Also be aware that they are often unregulated and read the warning from the SEC : Binary options and Fraud

So what are they?  In short :
You can make a bet that a stock will go up or down for a very short time period.  For example you buy a $100 option that it will go up.   5 minutes later if you are right you get $170.  If you are wrong you get $15.    Do that 1000 times spending $100 x 1000 or $100,000 and get it right 50% and you make $92,500 and you lose $7500.    The allure here I think is that people think they can make informed guesses about what a stock or commodity will do.   But you can't.

Avoid binary options.  Its just gambling and the odds are stacked against you.    Plus its unregulated and prone to fraud.


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