How Do I Compute Expiry For Binary Options?


Calculating the expiry price for a particular option isn’t normally something you need to worry about since most brokers calculate the price for you. But since binary options are an over the counter market, meaning it’s controlled by the broker himself it’s a good idea to know how they calculate the expiry price.

This system is open to abuse by some unscrupulous brokers so try to establish what formula they use before you begin trading. The honest brokers will list it on their website, but if you can’t find it you can always ask them. Always be wary of a broker that refuses to tell you.

All traded options have two prices, the bid (for selling an asset) and the ask (for buying an asset). To save confusion the actual expiry price is calculated from these two prices using the formula above to get one expiry price.

This in itself causes confusion with regular traders because a conventional option would close at the bid price. But due to the way binary options are traded only one price can be given at anyone time.

As I said you don’t generally need to calculate this yourself as your broker will do it for you, but it’s important you’re aware how its calculated, especially when the price closes at or near the opening price.

Every broker uses a slightly different method for calculating expiry but the following is one of the most popular and most binary options brokers use a variation of it.

The following terminology is used to calculate the expiry rates of binary options:

Bid Price – The last known price quoted for selling an asset prior to expiry.

Ask Price – The last known price quoted for buying an asset prior to expiry.

Last Trade – The last price actually paid for the asset prior to expiry.

Last Quoted Index Price – The last quoted price for an index prior to expiry.

Expiry Level Calculations

Use the following formula to calculate expiry levels:

Option Type Expiry Level Formula
Indices The last quoted index price that appears in the Data Provider field at expiry
Currencies The sum of the bid and ask price (at expiry) / 2
Stocks The sum of the bid and ask price (at expiry) / 2
Commodities The sum of the bid and ask price (at expiry) / 2

 



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