Moneyness and Trader Direction

When a binary option strike price is in-the-money (ITM) its meaning, as to its profitability, depends on whether the trader has gone long or short. For example, if the trader is putting on a long position, he is expecting the underlying spot market to go up. In-the-money means that the spot underlying market has already moved above the binary option strike price—underlying market > strike price. This is exactly what the trader wants to see happen for profits to be realized. The effect is that the market begins to price higher the cost of buying that contract. The crowd becomes optimistic for the price to remain above the binary strike price.

When buying a binary option, remember these relationships between moneyness and the underlying market price: