What is a 'Cash-Or-Nothing Call'

A cash-or-nothing option is a type of digital option whose payout is fixed after the underlying stock exceeds the predetermined threshold or strike price. The payout depends only on whether or not the underlying asset closes above the strike price - in the money - at the expiration date. It does not matter how deep in the money as the payout is fixed.

Also called "binary call" or a "digital call."

BREAKING DOWN 'Cash-Or-Nothing Call'

As the name suggests, cash-or-nothing options settle in cash.

Although all digital options may appear to be simple, they are different from vanilla options and may be traded on unregulated platforms. Therefore, they may carry a higher risk of fraudulent activity. Investors who wish to invest in binary options should use platforms that are regulated by the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC) or other regulators. They also can carry a stigma of being close to a gambling instrument.

Both cash-or-nothing calls and cash-or-nothing puts either pay or they don't pay, hence the term "digital." Standard options pay on a sliding scale so the deeper in the money they move, the higher the payout.

There are other types of binary options including asset-or-nothing calls and asset-or-nothing puts. However, while the name suggests they settle with physical delivery of the underlying asset, that is not always correct. Depending on the options, the payoff could be the cash price of the underlying asset at expiration. And it is digital, i.e. all or none, so if the underlying price is above the strike price, it pays the underlying price. If it is not above the strike then the payoff is zero.


For example, assume the Standard & Poor's 500 Index (S&P 500 Index) currently trades at 2,090 at 12:45 p.m., on June 2. A trader is bullish on the S&P 500 Index and believes that it will trade above 2,100 before the end of that trading day on June 2. The trader purchases 10 S&P 500 Index 2,100 cash-or-nothing call options at 12:45 p.m. for $50 per contract. If the S&P 500 Index closes above 2,100 at the end of the trading day, on June 2, the trader would receive $100 per contract, or a profit of $50 per contract. Conversely, if the S&P 500 Index closes below 2,100, the trader loses all of his investment, or $500.

Closing just slightly in the money is all the call holder needs to profit. If the trader believes the underlying asset will close significantly higher than the strike price then standard option may be a better choice since it allows the holder to participate in that gain. The cost should also be lower.

Exercise Style

Binary options are either American Style or European Style depending on the individual market and the underlying asset.

American Style digital option automatically exercise the moment they get in the money, unlike American style standard options. This means that the holder gets the payoff immediately instead of waiting for expiration. This is similar to one-touch options.

European Style digital options only exercise at expiration. Most digital options are in the European Style.

  1. Asset-Or-Nothing Call Option

    An asset-or-nothing call is derivative security for which there ...
  2. Asset-or-Nothing Put Option

    An asset-or-nothing put option is an option payoff that is equal ...
  3. Digital Option

    Digital options have a fixed payout and risk, are based on price ...
  4. Binary Option

    A binary option is a financial product where the buyer receives ...
  5. Listed Option

    A listed option is a derivative security traded on a registered ...
  6. Exotic Option

    An exotic option is more complex or has a different structure ...
Related Articles
  1. Trading

    Want to Day Trade? Try Binary Options Or Spread Betting

    Interested in Day Trading? These two derivative products are growing in popularity due to their profit potential and small trading capital required.
  2. Trading

    What You Need to Know About Binary Options Outside the U.S.

    Binary options let traders profit from price fluctuations in multiple global markets but it's important to understand the risks and rewards.
  3. Trading

    Options Hazards That Can Bruise Your Portfolio

    Learn the top three risks and how they can affect you on either side of an options trade.
  4. Trading

    Binary Options

    A type of option where the payoff depends on both the price levels of the strike and the underlying asset, like standard options. If the binary option expires in the money, the trader will always ...
  5. Trading

    Trading forex with binary options

    Binary options are an alternative way for traders to play the forex market – with a major advantage.
  6. Trading

    The Basics of Options Profitability

    Learn the various ways traders make money with options, and how it works.
  7. Trading

    How The New NYSE Binary Options Work

    The New York Stock Exchange has launched its own version of binary options called Binary Return Derivatives Options or ByRDs.
  8. Trading

    Binary Options For Capital-Protected Investments

    Binary options may sound complex, but they can be used to create capital-protected investments. Here's how.
  1. 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 >>
  2. What is the history of binary options?

    Discover the history of binary options trading, which is now one of the fastest growing investment market vehicles available ... Read Answer >>
  3. What's the difference between binary options and day trading?

    Binary options and day trading are both ways to make (or lose) money in the financial markets, but they are different animals. ... Read Answer >>
  4. When is a put option considered to be 'in the money?'

    Learn about put options, how these financial derivatives work, and when put options are considered to be in the money related ... Read Answer >>
Trading Center