price of the underlying asset. 0 or 1 where 1 being the maximum payoff. Example, keita Yoshihara is a trader at Foundation Investments. What if the SET is 1,600? Payoff of a binary option on the other hand, is just a fixed amount which is not affected by the difference between the exercise price and the price of the underlying asset. Solution, sPX is a binary call option which means it will pay 100 if the exercise-settlement value (SET) (which is the price of the underlying asset the S P 500 index) is equal to or greater than the exercise price and zero if the SET.

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In the second scenario where SET is 1,600, payoff will be zero because the condition required to trigger payoff is not fulfilled.e. This is expressed by the following formula: Binary Call Option Payoff Price geq Exercise Price0, Exercise Price Underlying's Price endmatrix right. Formula, a binary call option pays 1 unit when the price of the underlying (asset) is greater than or equal to the exercise price and zero when it is otherwise. It is also called digital option because its payoff is just like binary signals:.e. In this scenario Keita will have to let the options expire wothless. The SET (1,600) is not greater than or equal to the exercise price of (1,650). On 1 June 20Y3, he bought 1,000 cboe binary call options on S P 500 (SPX) with exercise price of 1,650.