Blain comments: Binary options are nothing new to the rest of the world. However, here in the US, mostly due to regulation (and their absurdity), binary options have never gained traction. Well, TradeKing is becoming the “first retail brokerage firm” to offer binary options. Note though, Nadex holds the title as the first US regulated binary options broker. You’ve probably seen their ads around the web as they’ve been hitting promotions hard early here in 2016. Binary options hold appeal due to their low minimum deposits and simplicity. At best, it’s guess and check gambling with the house taking a commission on each trade. Basically, the odds are stacked against you long term, so hope for a great streak luck. If there is one positive with binary options, there is no margin nor leverage involved. Instead, it’s conducted with all cash transactions. Thus, thankfully, you can only lose what you put in. Seeing TradeKing (or any retail online broker) enter this space is a surprise, so naturally we are very curious to see if any other retail brokers follow suite.
TradeKing has announced they will participate in a brand-new options product being launched by the NYSE on Thursday, April 21. Binary Return Derivates (ByRDs) generate returns from the rise and fall of equity securities and they come with a capped risk exposure for both buyers and sellers. This product allows bullish investors to purchase a “Finish High” binary option which will return $100 if the volume-weighted average price (VWAP) of the underlying security finishes above or below a given level on a particular date in the future. Bearish investors can similarly purchase a “Finish Low” binary option.
These binary options are designed to be a much more simplified way of trading options. The cap of $100 either way makes this type of option appeal to new options investors. They are cash settled and can only be settled on the expiration date.
NYSE Amex options is launching these ByRDs on 60 highly-liquid equity and ETP securities. These include AAPL, BABA, IBM, and SPY. More tickers will be added in the future. TradeKing will be the first retail brokerage to offer ByRDs on their launch date of April 21.
If you are interested in this binary option product, there will be TradeKing-sponsored education on the product in the coming weeks.
The NYSE page explaining Binary Return Derivative Options can be found here.
Click here for the TradeKing announcement on their offering of these binary options.