In a Binary option the payoff is ‘fixed or nothing’, and this depends on the price of the underlying stock on maturity date.
For example, you have bought a binary option on Tata Steel, the contract specifications are as follows…
Strike price: 480, Spot price: 460, Payoff: 30, premium paid: 10 and expiry is 1 day.
In this case, If the stock closes above or equal to 480 by end of the day, you will receive Rs. 30 otherwise you lose the premium.
Karthik, can you confirm if binary options are available in India? Asking this because I have never heard of it before. THanks!
No it does not exist in India. I just made up the tata steel example to explain with clarity