No option trading tutorial would be finished without talking about binary options. Few investors know of this type of hyper short term high yield investment. You may look on the web for another option trading tutorial if you want to know about the more common form of contracts trading.

Contracts like these have only two outcomes. It may make more sense to you to think of this as of "on" or "off". In this case the binary switch refers to up or down movements in a stock, currency, or index.

In order to make a trade an investor simply selects from one of the available contracts and decides "call" or "put" (for up or down) and decides the dollar value of the contract. Selecting how much to invest and choosing either "call" or "put" are the only decisions the trade needs to make. The broker or platform grinds out the math and determines the payout scenarios for the trade to review and clicks submit.

The cool thing about binaries is that the only thing that determines payout is the direction of stock price movement - amount of movement has no bearing on the outcome of the trade. If the stock moves two dimes or a dollar the contract yields the same value at expiration. A trader with a 60% yield contract for $200 would receive $320 on an in the money trade no matter how far in the money the option was. Contracts end at the top of the hour or at the end of the day.