Digital 100 options are options where you know beforehand exactly how much you gain if the option expires in the money. This makes them different from traditional options, where there is a sliding scale for how large a profit you make when the option expires in the money. A lot of speculators and investors like 100 Options since it is easier to plan your strategy and manage risk when you exactly what you stand to lose or win, instead of having to deal with a sliding scale of possible profits.
Underlyings for Digital 100 Options
Just like a traditional option, a digital 100 option is a derivative in the sense that its value is derived from the value of one or more underlyings.
Virtually anything with a non-fixed value can be used as an underlying for a digital 100 option, including:
- Stock price
- Commodity price
- Currency pair (FX rate)
- Cryptocurrency rate
- Price of another derivative
- Official sales numbers for a product
One of the things that many speculators like about Digital 100 options is that you can buy ones that have a super short life time, which means that they expire very soon after being purchases. Some Digital 100 options will expire just 30 seconds after purchase, which make them a great tool for people who want to attempt to make money from small short-term changes in an underlying. They are also popular among speculators who don’t want to have their money tied up in investments for long periods of time before finding out if they made a profit or not.
It is also quite easy to find Digital 100 options that expire 60 seconds a few minutes or a few hours after purchase. In addition to this, you have the end of the calendar day options and end of the trading day options. These options don’t expire a certain time after being purchased; they expire at the end of the calendar day or trading day, regardless of how early or late in the day you buy them.
At the other end of the spectrum we find long-term Digital 100 options, such as options that will live for several days, weeks or even months. Also, some vendors offer end-of-the-year Digital 100 options.
Digital 100 option types
Since different sellers of Digital 100 options can use different names and apply different rules, it is important to always check the rules pertaining to the particular digital 100 option you are interested in buying. Also remember that two digital 100 options purchased through two different vendors can be quite different from each other even though there were listed under the same type name by both vendors. To avoid unpleasant surprises, always check the fine print.
Higher / Lower (also known as Up/Down)
When this option expires, will the value of the underlying be higher or lower than what it is when purchased the option?
This is very common digital 100 option type. It’s actually difficult to find a vendor of digital 100 options who doesn’t sell this type.
Through the lifetime of this option, will the value of the underlying ever touch a certain point?
This makes it interesting to continuously keep an eye on the movements of the underlying, instead of just checking it when the option is getting close to expiring.
If the underlying does touch the point, the option will expire immediately – and if it was a TOUCH option you will get paid right away. With the TOUCH options, you sometimes get unexpected surprise payouts showing up in your account instead of having to wait for a set expiry time.
Range (also known as In/Out & Boundary)
When this option expires, will the value of the underlying be within the particular range or not?
With this option type, you don’t just need to predict if the value will go up or down, you also need to predict if it will stay within a specific range or not. Because of this, many sellers will offer a higher payout for these options compared to the Higher/Lower ones.
Exotic Digital 100 Options
Here area few examples of exotic digital 100 options that can be difficult to find online, but that provide an interest alternative to more vanilla digital 100 options. If you are a novice digital 100 option trader, our advice is that you start out with vanilla options before taking a swing at the more exotic variants.
Double No-Touch Digital 100 Option
The Double No-Touch Digital 100 Option will pay out if the value of the underlying doesn’t reach any of two predefined points at any time throughout the lifespan of the option.
Example: The EUR/USD currency pair is currently at 1.240 and you believe that it will not venture far from this point during the next 48 hours. You purchase a Double No-Touch Digital 100 Option with the barrier points 1.150 and 1.350.
Outperformance Digital 100 Option
An Outperformance Digital 100 Option is based on the performance of two underlyings in relation to each other.
Example: You believe that the FTSE100 will outperform the S&P Asia 50 over the next two weeks, so you purchase a Digital 100 Option that will pay you if your prediction comes true.
Ladder Digital 100 Option
With this option, the trader is given a range of price levels which are lined at equal intervals – just like a ladder. Each step in the ladder is connected to a certain time period. This means that there are several value levels that need to be reached; one for each time period. The trader gets paid if the value of the underlying correctly “climbs the ladder”.
You can also purchase ladder options where the value must stay below a certain point for each time period.
Some ladder options will only pay out if the ladder is climbed perfectly. Other ladder options will pay out a certain percentage for each individual ladder that is climbed correctly.