Digital Options

What Are Digital Options?

Digital options consist of the purchase or sale of a right that will allow you to set a range limited by 2 price levels. The buyer makes a profit if the market price at expiration is within the established levels or outside of them, depending on the type of option chosen. The maximum losses and profits are known when making the contract, these will always be limited to that amount regardless of the price of the underlying asset.

What Types Are There?

There are 2 types of European Digital Range Options: In the Money (ITM) and Out of the Money (OTM). The European Digital Range Option holders will obtain the maximum benefit, which is the difference between what is stipulated to receive and the premium already paid, if on the expiration date.

European Digital Range ITM - the buyer of a European Digital Range ITM option makes a profit if the market price at expiration is between the previously set trigger levels.

European Digital Range OTM - the buyer of a European Digital Range Outside option makes a profit if the market price is outside the trigger levels.

If the required condition for the type of option chosen is not met, the buyer loses the premium already paid, which is the amount that the seller of the option will earn.

Please note that this article is purely educational and this instrument is not a part of XTB’s offer.