DEFINITION of 'Cash-Or-Nothing Call'

An exotic option whose payoff is a predetermined amount (sometimes equal to the strike price) if the price of the underlying asset reaches (for American options) or exceeds (for European options) the strike price; if not, the payoff is set to zero. A cash-or-nothing call option is considered a binary or digital option because the payout is either a fixed amount or nothing.

BREAKING DOWN 'Cash-Or-Nothing Call'

By way of contrast, a plain vanilla call option's payout is the difference between the strike price and the market price when the option expires. Before the option expires, there are numerous possible payouts. An investor might buy a cash-or-nothing call option over a plain vanilla call option if he or she thinks the underlying asset's price will exceed a given level by only a small amount. The price of a cash-or-nothing call option is based on the probability of the underlying asset's price reaching (for American options) or exceeding (for European options) the strike price.

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RELATED FAQS
  1. What's the difference between a regular option and an exotic option?

    Before learning about exotic options, you should have a fairly good understanding of regular options. Both types of options ... Read Answer >>
  2. How are call options priced?

    Learn how aspects of an underlying security such as stock price and potential for fluctuations in that price, affect the ... Read Answer >>
  3. What is the difference between in the money and out of the money?

    Learn about how the difference between in the money and out of the money options is determined by the relationship between ... Read Answer >>
  4. How do I change my strike price once the trade has been placed already?

    Learn how the strike prices for call and put options work, and understand how different types of options can be exercised ... Read Answer >>
  5. How does the term 'in the money' describe the moneyness of an option?

    Find out what in the money means about the moneyness of call or put options and what it indicates about the relationship ... Read Answer >>
  6. How do I set a strike price for an option?

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