What Is an Asset-or-Nothing Put Option?

An asset-or-nothing put option provides a fixed payoff if the price of the underlying asset is below the 澳洲幸运5官方开奖结果体彩网:strike price on the option's 澳洲幸运5官方开奖结果体彩网:expiration date. If instead𓆉 it is above the strike price, then th💎e option expires worthless.

Asset-or-nothing put options are a type of 澳洲幸运5官方开奖结果体彩网:binary option, which are also known as "澳洲幸运5官方开奖结果体彩网:digital options." They are so named because 🍬their success or failure is based on a yes-or-no (binary) prop🦹osition.

Understanding Asset-or-Nothing Put Options

Unlike regular put options, asset-or-nothing put options do 🔜not pay the difference between the strike price and market price of the underlying asset. In fact, asset-or-nothing put options do not allow the option holder to take a position in the underlying asset at all. Instead, they simply provide a fixed ▨payout if the market price is below the strike price at the time of expiration.

Most asset-or-nothing put options are traded outside of the United States, and are usually structured as 澳洲幸运5官方开奖结果体彩网:European options. Unlike 澳洲幸运5官方开奖结果体彩网:American-style options, European options can only be exercised on their 澳洲幸运5官方开奖结果体彩网:maturity date. Although some binary options do allow execution before the expiration date, this typically reduc𒅌es the payout received.

Real World Example of an Ass﷽et-or-Nothing Put Option

Suppose you are an options trader who believes that shares in XYZ Corporation are likely to fall this Friday, due to an 澳洲幸运5官方开奖结果体彩网:earnings report that you suspect will disappoint investors. The shares are currently trading for $30 apiece, and although you doubt that the fall will be too dramatic, you are quite confident that a d🍎ecline will occur.

Searching for a way to profit from your prediction, you find an asset-or-nothing put option that expires on Friday, at the end of the trading day, with a strike price of $25. The terms of the contract state that if the market price of XYZ shares is below $25 by the end of trading on Friday, then you will receive a fixed sum of $50. If on the other hand, the shares are above $25, then your payout will be zero. Convinced that XYZ will decline below $25 on Friday, you decide to purchase 🌱the option.

On Friday, XYZ reports earnings that are even more disappointing than you imagined. The reaction from investors and analysts is strongly negative, wi🎐th the stock declining all the way to $10 per share.

By the end of the day, you have mixed feelings. On the one hand, your asset-or-nothing put option was profitable, providing a fixed sum of $50. On the other hand, if the option you purchased had been a regular (or "澳洲幸运5官方开奖结果体彩网:plain vanilla") put option instead of an asset-or-nothing ▨put option, you might have profited even more frﷺom XYZ's stunning decline.