A type of exotic options in which the payoff is either a fixed amount for an in-the-money option or nothing for an out-of-the-money option. For example, an investor is contemplating purchasing a binary call option on the shares of XYZ company. The exercise or strike price is $100 per share, and the option fixed payoff is $1100. At expiration, if the market share price is $105 (or whatsoever price more than the exercise price), then the option holder will receive a payoff of $1100. In the opposite scenario, if the market share price is $95 (or whatsoever price less than the exercise price), the option holder receives nothing.

The binary option is alternatively known as digital option or all-or-nothing option.