Why are digital options so popular among online investors? Simply put, the binary option payoff is unbelievably high! Next to the binary option pricing information is the digital option payoff, and it's always an incredible 75%.
Digital option pricing can vary for each asset option and the binary option payoff is displayed clearly every time you execute an online binary option trade.
Every digital option has 3 possible outcomes: it can be "in the money", "on the money" or "out of the money":
In the money - means that the digital option holder predicted correctly the behavior of the assent – it doesn't matter if the price went up or went down or the amount of the change, all that matters is if the investment was made on the right direction; up or down.
In case the prediction upon the asset price direction was correct than we can say that the digital option is in the money, as a result the digital option holder gets 75% profit on the investment.
For example if you buy a call option on the crude oil, that's mean you are predicting that that the price of the crude oil on expiration time will be higher than it's strike price: in case the price on expiration time was indeed higher that it's strike price the meaning is that the digital option has expired in the money, as a result you'll get 75% profit on your investment.
On the Money – the meaning of that is; that the price of the underlying asset on expiration time was the same as its strike price.
Out of the money – Means that the prediction upon the behavior of the assent was wrong; for example if you buy a put option on crude oil – put option means a prediction that the price of an asset will go down; suppose that the price of the crude oil at expiration time was higher that it's strike price, that's mean your digital option has expired out of the money (wrong prediction), in this case will get back 10% of your investment.
The term digital option payoff relates to the fixed payoff you are getting in case your digital option has expired in the money, unlike forex or other forms of investment the payoff is fixed, it doesn't matter how much the price went up or down, if the option has expired in the money it will always get same payoff.