A one-touch option pays a premium to the holder of the option if the spot rate reaches the strike price at any time prior to one touch in options expiration. Key Takeaways A one-touch option pays a premium to the holder of the option if the spot rate reaches the strike price at any time prior to option expiration.
One-touch options are usually less expensive than other exotic or binary options like double one-touch, or barrier options. Derivatives, like one-touch options, are not frequently traded by small investors.
How does it work? It could move a little or a lot, and you would still pull a profit if you picked the right direction. With One Touch trading, you need to be able to predict both the direction of price movement and how far price is going to travel. When you see a One Touch trade, you will notice a goal price listed alongside the expiry time. This is the price that the asset must reach within the expiry period.
Understanding One-Touch Options One-touch options allow investors to choose the target price, time to expiration, one touch in options the premium to be received when the target price is reached. Only two outcomes are possible with a one-touch option if an investor holds the contract all the way through expiration: The target price is reached and the trader collects the full premium.
The target price is not reached and the trader loses the amount originally paid to open the trade. Like regular call and put options, most one-touch option trades can be closed before expiration for a profit or a loss depending on how close the underlying market or asset is to the target price.
If the barrier breach happens, the payment is made either at expiration delayed settlement or shortly after the barrier breach immediate settlement. One touches are closely related to knockout options and represent the rebate that the equivalent knockout option pays in the event of knockout. Even though the contractual provisions of one touches look simple, their pricing is far from trivial. Typically, the barrier is set far from the current underlying price and much depends on how the underlying volatility changes between now and the time the underlying asset gets close to the barrier.
One-touch options are useful for traders who believe that the price of an underlying market or asset will meet or breach a certain price level in the future, but who are not certain that price level is sustainable. Because a one-touch option has only a yes-or-no outcome by expiration, it is generally less expensive than other exotic or binary options like double one-touch or barrier options.
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Derivativeslike one-touch options, are not frequently traded by small investors. There are some trading venues where they are available, but regulators in Europe and the U.
In many cases it is not possible to take advantage of that mispricing by becoming an option writer or seller. Binary or exotic derivatives are usually traded by institutions who can negotiate with each other for better pricing.
The trader could choose to sell their one-touch option contracts for a profit or continue to hold the trade through expiration. This trader may then decide to either sell the options and close the trade at a lower price for a loss or hold it in the hopes that the market recovers.