Posted in Finance, Accounting and Economics Terms, Total Reads: 156
Definition: Digital Option
A digital option is a type of option on which a return is expected based on an underlying contract. The digital option has a contract by which the return that one can expect will not depend on any market factors and the pay out on that investment will be fixed whether the price keeps fluctuating.
Hence, the pay out on such an option is always predefined and hence it is the safest type of options available and hence most of the investors prefer on opting for such an option over others. However, the value of the payout depends on the signed contract by the individual by which the value of the option does not depend on the price of the fluctuating option.
One such example can be if you buy for Rs. 35 or Rs. 40, the payout will remain the same once the stock price crosses a threshold value.