Expiration Out of the Money

The Term That Traders Hate to Use

In the next part of our tutorial we’ll talk about another popular term which is, however, despised by most traders. Expiration out of the money is the situation in which the asset’s price goes into the wrong direction when the expiration time comes, and you end up losing your investment. We have already explained what it means for a trade to expire in the money and we sincerely hope that throughout your entire trading career you’ll use this term more often than the expiration out of the money. Let’s get back to the topic what expiration out of the money is and why traders hate it so much.

When Does a Trade Expire Out of The Money?

As you already know, when trading binary options there are only two possible outcomes of the trade – you either win or lose. In the last article of our tutorial, we explained the concept behind expiration in of the money as well as the meaning of this term, but now it is time to take a closer look at what happens when you lose a trade.

You already know that some of the main characteristics of a binary options trade are the strike time, the strike price and the expiration time, so it shouldn’t be a problem for you to understand what expiration out of the money is. Let’s say that you are planning to place a put option at 14:00 on the EUR/USD currency pair which has a current value of 1.335.

Therefore, the strike price is 1.335 and the strike time is 14:00. The next step is to choose the expiry time of your trade – in this case we’ll assume that you’ve selected “1 hour”. This means that your trade will expire at 14:59 and you’ll find out if you’re prediction was right or wrong. At 14:59 you see that the current price of the EUR/USD currency pair is 1.336 which means that the asset’s price went up. Since you placed a Put option, this means that you predicted that the price will go down after one hour. However, it is not unusual for the price to go up, so the trade expires out of the money and you end up losing the money you placed on this bet.

Conclusion

In short, when a trade expires out of the money you are on the losing side. This is why most traders hate using this term, because it usually means that their prediction didn’t turn out to be correct. Now you are aware of some of the binary option trades’ main characteristics, so it is time to move further with your education. In the next two parts of our tutorial we’ll tell you about binary options trading hours and make you familiar with the most important qualities and characteristics of binary options brokers.