One-Touch Option
Candlefocus EditorHow does a One Touch Option work? A one-touch option pays a fixed amount if the price of the underlying asset touches the strike price at least once during the option period. They are usually used by experienced traders to make profit from rapidly moving markets, since there is a large reward if the option is successful.
When considering the purchase of a one-touch option, the investor must analyze how likely it is that the spot rate will reach the strike price. The higher the expected volatility, the more likely it is that the spot rate will reach the strike price. Investors must also consider the time period in which the option will be held, as a longer holding period increases the chances of the spot rate reaching the strike price.
The advantages and disadvantages of one-touch options must be carefully weighed before investing. It is important to be aware of the risks associated with one-touch options, as they are more volatile than traditional options and thus the risks can be quite high. Additionally, the pricing of one-touch options is highly complex and thus investors unfamiliar with derivatives could incur significant losses by venture into investing in them without proper knowledge and understanding.
One-touch options are useful for experienced investors looking for high rewards in a rapidly-changing market. However, for the average small investor, these options should be avoided since there is high risk of significant losses since these options pricing is complex and usually comes with high costs.