Introduction

CBOE Binary Options are a pure and simple way to trade based on your opinion of where a market is headed over a certain period of time. They are contracts that, at expiration, pay out a pre-determined, fixed amount or nothing at all.

Like traditional options, Binary Options are based on an underlying security, have various strike prices to choose from as well as various expirations. If, at expiration, the price of the underlying security closes at or above the selected strike price, the buyer receives a set payout per contract. If the underlying security closes at a price that is below the strike price on the expiration date, the buyer receives nothing. As with traditional options, a Binary option position may be liquidated (bought or sold to close) prior to expiration.

The price of a Binary Option usually reflects the perceived probability that the underlying security price will reach or exceed the selected strike price at expiration. The cost of CBOE Binary Options will normally be quoted at a price between zero and $1 (which equates to $1 to $100 per contract). Buyers of Binary Options pay for the contract at the time of purchase.

"CBOE's binary options provide a straightforward way for investors to act on their views of two of the most closely followed indexes in the world, the S&P 500 and the CBOE Volatility Index,"

"These products will appeal to the broad range of market participants, including individual investors, hedge funds and institutions, who have an opinion, one way or another, on future price movements in SPX or the VIX."

CBOE Chairman and CEO William J. Brodsky

Expiration dates and settlement values are the same as for traditional options. Initially, CBOE will list three consecutive near-term contract months. Only binary call options will be listed on two broad based indexes: SPX and VIX.

CBOE Binary Options are cleared through the triple-A rated Options Clearing Corporation (OCC) and can be traded in a regular securities account that is approved to trade options.

Links to More Information

Jon Najarian discusses Binary options on CNBC
SPX Binary Contract Specifications
VIX Binary Contract Specifications