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Asset-or-Nothing Put Option

Asset-or-Nothing Put Option

What Is an Asset-or-Nothing Put Option?

An asset-or-nothing put option gives a fixed payoff if the price of the underlying asset is below the strike price on the option's expiration date. On the off chance that rather it is over the strike price, the option terminates worthless.

Asset-or-nothing put options are a type of binary option, which are otherwise called "digital options." They are so named in light of the fact that their prosperity or disappointment depends on a yes-or-no (binary) proposition.

Figuring out Asset-or-Nothing Put Options

Dissimilar to standard put options, asset-or-nothing put options don't pay the difference between the strike price and market price of the underlying asset. As a matter of fact, asset-or-nothing put options don't permit the option holder to take a position in the underlying asset by any stretch of the imagination. All things considered, they basically give a fixed payout in the event that the market price is below the strike price at the hour of expiration.

Most asset-or-nothing put options are traded outside of the United States, and are normally structured as European options. Dissimilar to American-style options, European options must be practiced on their maturity date. Albeit a few binary options really do permit execution before the expiration date, this normally diminishes the payout received.

Binary Options

Inside the United States, a well known scene for trading binary options is the North American Derivatives Exchange (Nadex), a Chicago-based platform that is regulated by the Commodity Futures Trading Commission (CFTC).

Real World Example of an Asset-or-Nothing Put Option

Assume you are an options trader who accepts that shares in XYZ Corporation are probably going to fall this Friday, due to a earnings report that you suspect will dishearten investors. The shares are right now trading for $30 each, and despite the fact that you question that the fall will be too sensational, you are very sure that a decline will happen.

Looking for a method for profitting from your prediction, you find an asset-or-nothing put option that terminates on Friday, toward the finish of the trading day, with a strike price of $25. The terms of the contract state that assuming the market price of XYZ shares is below $25 toward the finish of trading on Friday, then, at that point, you will receive a fixed sum of $50. In the event that then again, the shares are above $25, your payout will be zero. Persuaded that XYZ will decline below $25 on Friday, you choose to purchase the option.

On Friday, XYZ reports earnings that are even more frustrating than you envisioned. The reaction from investors and analysts is unequivocally negative, with the stock declining the whole way to $10 per share.

Before the day's over, you have mixed sentiments. From one viewpoint, your asset-or-nothing put option was profitable, giving a fixed sum of $50. Then again, on the off chance that the option you purchased had been a standard (or "plain vanilla") put option rather than an asset-or-nothing put option, you could have profited even more from XYZ's staggering decline.


  • These binary options pay a foreordained payout, or else or zero at expiration.
  • Asset-or-nothing put options settle with the physical delivery of the underlying asset in the event that the option terminates in the money.
  • Asset-or-nothing options can be a simplified risk hedge.