Binary Options are cash-settled contracts based on whether the underlying closes above/at or below the predetermined price level. Unlike traditional options, they do not provide the right to buy or sell the underlying asset. At expiration, a binary option yields a predetermined amount if the price condition is met or $0 if it is not.
Schwab currently offers Mini-S&P 500 Index (XSP) binary options under the symbol XSPBX; only long calls and long puts are available. Cboe Global Markets only lists zero days to expiration (0DTE) and one day to expiration (1DTE) binary options at this time. Every contract is predefined by the exchange, and the traders choose the projected outcome from the provided strike prices.
How Binary Calls and Puts Settle
Suppose that XSP is trading at $775 and a trader purchases a 0DTE binary call with a strike price of $780 for a premium of $0.50. With a contract multiplier of 100, the contract costs $50.
The settlement value for this binary option is $1.00 and the contract multiplier is 100, meaning the profit for a correct "yes" or "no" prediction is $100 ($1.00 x 100) per contract minus the premium paid.
|
XSP at Expiration |
Is the call’s condition met? |
Cash Payout |
Profit or Loss |
|---|---|---|---|
|
$800 |
Yes. XSP is at or above $780. |
$100 |
$50 profit |
|
$780 |
Yes. XSP is at or above $780. |
$100 |
$50 profit |
|
$779 |
No. XSP is below $780. |
$0 |
$50 loss |
|
$750 |
No. XSP is below $780. |
$0 |
$50 loss |
Each binary option settles at one of two values: $100 when its stated condition is met, or $0 otherwise. A binary call yields $100 when XSP is at or above the strike price at settlement. A binary put yields $100 when XSP is below its strike price at settlement. These values exclude commissions, fees, and other transaction costs.
Placing a Binary Option Order
- Select the Trade tab, then select the All Products subtab.
- Enter XSPBX in the symbol selector.
- In the Option Chain section, expand the applicable expiration to display the available binary calls and puts.
- Select the ask price for the desired call or put. This creates a buy-to-open order in the Order Entry Tools panel.
- Review the order in the Order Entry tab and make any necessary changes.
- Select Confirm and Send.
- In the Order Confirmation Dialog that appears, review if the order details are correct, then select Send.
*For illustrative purposes only. Not a recommendation of a specific security or investment strategy. Past performance is no guarantee of future performance.
Binary options are European-style contracts with a fixed, all-or-nothing cash payout that settle on the expiration date based on whether the underlying closes at or above a specified strike price (calls) or below the specified strike price (puts).