Binary options trading offers a unique way of investing in the financial markets. Unlike conventional forms of investment, in binary options trading you only have two alternatives to choose from: Call or Put. But what is a call option? Call is sometimes referred to as “Up,” whereas Put is sometimes called “Down.”
In this article, What is a Call Option, you will learn what is all about and how you can use it to make money by trading call option.
You can use a call option to trade several different types of binary options. They include 60 Seconds, 30 Seconds and High/Low options. They are the most popular types of binary options, and available from virtually all binary brokers. The call option is one of the most widely used options in the market.
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The reason a call option is sometimes called a High option, is that it indicates an upwards market movement. You invest in it when you believe that the asset in question is about to experience an upwards market movement.
Let’s use the price of a famous stock as an example. With most binary brokers you can trade in binary options based on the price of Apple shares. If news about the company is imminent, you can assume that this will influence the price. If the news is positive, for example the quarterly results are published and they exceed expectations, it can be assumed that the price of the Apple stock will go up.
If the news, on the other hand, is bad, for example a recall of an Apple product due to security concerns, you can assume that the price will go down.
In the first event, it would be reasonable to invest in a Call option. This would be the same as making a prediction that the price will go up. In order to do this, you simply log into your binary broker and open the trading platform. From the list of assets you click Apple. Then you choose expiry time – you can in most cases choose anything from 30 seconds to a whole day, or even more. Finally you indicate how much you would like to invest in this call option.
Once your call option reaches its expiry time, you will know immediately whether you won or not. If the price of the Apple stocks went up, you won and will receive a return on your investment. How big a payout a broker pays out for a call option of this type varies. In most cases you stand to make in the region of 75% profit, sometimes more. If the price fails to move in the predicted direction, you will lose the money you invested.
Please be advised that we talked about news and stocks in this example purely to illustrate what a call option is. It is not always advisable to trade based on news releases regarding publicly listed companies. The reason for this is that a lot of traders and investors will already be aware of the news before you, and the price will reflect their knowledge.
Of course, you could have used you prediction regarding the share price of Apple to make money in conventional trading too. You would do that by purchasing stocks in the market. This would require you to have an account with a stock broker, which would charge you a fee for the transaction. If the price of Apple rose by 10%, an outrageous growth level and almost unheard of within the typical time frames of binary options, you would earn exactly that: a 10% return.
As we have seen, by using the same prediction to invest in a binary call option, you could earn a payout of 75% – in as little as half a minute!