Binary Options for the Individual Investor

Focus: OPTIONS

NYSEBinary Return Derivatives were recently introduced to the market by the NYSE Amex and this binary option is one of the newest derivative products to hit the market. In this article, the staff of the NYSE discusses the two forms of this new product and highlights the opportunities for investors.

Binary Return Derivatives (ByRDsSM) are "binary" options with a potential per-contract fixed return amount of $100.00. ByRDs were launched by NYSE Amex on April 21st, 2016 and are one of the newest derivative products available to the individual investor. 

ByRDs are available in two forms: Finish HighSM ByRD and Finish LowSM ByRD. A Finish High ByRD is similar to a standard listed call option in that an investor purchasing a Finish High ByRD is bullish on the underlying security. A Finish Low ByRD is similar to a standard listed put option in that an investor purchasing a Finish Low ByRD is bearish on the underlying security.  An investor long on a Finish High ByRD receives $100.00 if it is in the money at expiration whereas an investor long a Finish Low ByRD receives $100.00 if it is in the money at expiration.

ByRDs are currently listed on 19 equities and ETFs with more expected additions in the near future.  ByRDs are cleared and settled by the Options Clearing Corporation (OCC) and can be bought or sold anytime during the life of the contract.  ByRDs have expirations every Friday for five consecutive Fridays.  ByRDs are European style exercise, are cash settled, have unique symbols with $1 strike price increments and trade in pennies.

Many of the strategies used with standard listed options will work using ByRDs.  For example, just as calls and puts may be used for speculating on volatility in an underlying security or ETF, so too can ByRDs.  The defined risk offered by ByRDs makes them an attractive tool for use in income-generating strategies and in situations where assignment of a short position would result in a sale of stock and a taxable event.