What is an Asset-or-Nothing Put Option

An asset-or-nothing put option is a binary put option with a fixed payoff that is equal to the asset’s price if it is below the strike price at expiration, or zero if it equals or exceeds the strike price at expiration. Because the success of these options is based on a yes or no proposition, they are also known as binary options or digital options.


Put Option Basics

BREAKING DOWN Asset-or-Nothing Put Option

Asset-or-nothing put options are exotic options that do not function like plain vanilla options, which pay the difference between the strike price and market price at expiry or prior to expiration. Asset-or-nothing options do not enable the holder to take a position in the underlying asset. Unlike vanilla options, they typically guarantee the holder a fixed maximum payout, regardless of how far the market price of the underlying asset falls below the strike price, and the maximum possible loss is also known.

For example, suppose an asset-or-nothing put options contract on a stock has a strike price of $100. The contract states that if the stock price is below $100 at expiration, the holder will receive a fixed sum of $100. But if the stock price is above the strike price at expiration, the holder will receive nothing.

Asset-or-nothing options are usually European options, which can only be exercised at maturity, though some binary options can be closed before expiration - although this typically reduces the payout received (if the option is in the money).

Asset-or-Nothing Options vs. Cash-Or-Nothing Options

There are two forms of binary options: cash-or-nothing and asset-or-nothing. The difference between them is that the payment on an asset-or-nothing option equals the price of the asset underlying the option, instead of a fixed amount of money with the cash-or-nothing option.

Where Are Asset-or-Nothing Put Options Traded?

Most asset-or-nothing options are traded outside the U.S. and may not be regulated. In the U.S. digital options may be bought through regulated digital options brokers such as Nadex, which is regulated by Commodity Futures Trading Commission (CFTC), or other regulators.