What Is a Bet Option?

Mary McMahon
Mary McMahon

A bet option is a type of options contract where the holder either gets a fixed amount if the option is in the money, or receives nothing. This type of option can be risky but, like others, can be bought and sold on the open market freely, allowing traders to speculate on bet options and spread out some of the risk. Financial markets where these options are available typically offer a range of products. They can be purchased directly or through the services of a broker or agent who can handle the transaction for an investor who is not comfortable exercising trades independently.

Man climbing a rope
Man climbing a rope

With a put bet option, the investor receives a payout if the value of the option is below the strike price at the time of expiration. In call options, investors get money when the value is at or above the strike price. Bet options allow investors to literally bet on the projected future value of a product like a stock, bond, or other type of security. If they bet wrong, they receive nothing back on the option.

These products are also known as all or nothing options, because of the way they are set up, or as binaries, since there are only two possible outcomes with a bet option. Investors who want to use these types of options can select from a range of products and may buy and sell on secondary markets to secure their positions. Investors who suspect an option will finish out of the money may attempt to sell it to avoid taking the loss, or to reduce the loss, as it may not be possible to sell the option for the original price.

Like many financial products, the bet option can be a powerful tool in the hands of an experienced investor, but it can also pave the way for serious mistakes. Investors who are not as familiar or comfortable with the market may make errors in their bets. Many trading firms expect a minimum investment, sometimes a high one, and this could expose investors to even more risks. Investors with an interest in bet options need to watch the market carefully and be prepared to act quickly.

Financial media may report periodically on current trends in options trading and can take note of particularly hot bet options on the secondary market. Robust interest in such options suggests that investors feel confident, and can be a good sign. It can also be an indicator of attempts to sell off options that may not yield a profit, however, so investors should evaluate any bet option that's subject to intense activity with care.

Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a wiseGEEK researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

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