An option whose payoff is either a predetermined amount if the underlying asset or index is at or above (for calls) or below (for puts) the exercise price at expiration, or zero otherwise (i.e., if the underlying asset or index is below (for puts) or above (for calls) the exercise price at expiration).

The payoff is a fixed sum irrespective of the option’s moneyness (the difference between the underlying asset’s price and the exercise price).

This option is also known as a binary option, a all-or-nothing option, a digital option, or a lottery option.