What Is a One-Touch Option?

Malcolm Tatum

A one-touch option is a type of investment opportunity that calls for the investor to set specific conditions that must be met in order to receive some sort of return. Typically, this approach calls for setting a price for the investment, the date in which the price will be met, and the amount of the payout that will be realized. With this particular approach to investing, the projections of the investor will prove accurate and a full payout is achieved, or the asset does not perform as anticipated and the investor makes nothing and even loses the premium paid for the options contract.

Man climbing a rope
Man climbing a rope

The use of a one-touch option works well with certain types of investment markets. This approach can be very successful with some sort of currency trading in a Forex market, since there is really no need to be concerned with what happens with the purchased currency for more than a specified period of time. In like manner, a one-touch option can be a viable approach to setting up some sort of contract in the commodities market. As long as the investor is able to identify a solid price that is sustained up to the expiration date, and also locks in a return that is profitable in view of the premium paid, the method can lead to realizing a significant return.

One way to understand how a one-touch option is structured is to consider the purchase of a commodity option that involves a fixed premium paid by the investor, along with a price that the commodity is anticipated to reach and sustain at a specified date in the future. Assuming that the commodity performs according to expectations and has reached that price, usually referred to as a barrier, by the expiration date, the investor is able to enjoy a profit from the venture. If the commodity fails to reach that barrier by the date of expiration, the investor loses any chance to make a profit from the investment, and also will lose the premium that was paid to create the one-touch option.

The risk associated with a one-touch option focuses on the necessity of choosing the right investment to use for this process, and using all available data to determine the market price for that investment at a specified date in the future. Failure to take known factors into consideration will lead to a faulty projection that is highly unlikely to yield a return when the expiration date arises. Even with careful scrutiny of all known factors before creating the one-touch option contract, it is important to remember that the possibility of some unanticipated event such as a natural disaster, a political coup, or other situations could exert sufficient influence on the movement of the asset. For this reason, investors would do well to also project the worst case scenario, which is the loss of the premium, and make sure that loss can be absorbed without creating a great deal of financial difficulty.

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