So, let’s spend a moment talking about the path we will follow. Using very simple analyses we will investigate and discuss options in ways similar to those uncovered by the economists who pioneered the earliest option theories. For them, at that time, many of the answers were not as clear-cut or straightforward as they will be for us. We have the benefit of their errors and pains to guide us properly. Options have been part of the markets for centuries, but the theories of fair value are, relatively speaking, still in their infancy. Before the 1970s successful binary options traders had to develop a superior ‘‘gut feel’’ to enable them to price options, for there was little theory to back them up. Slowly, over many years, option theorists started to spring up in academia.

They began puzzling over the fair valuation of binary options much like their academic predecessors mused over counting ‘‘how many angels could dance on the head of a pin.’’ Applying knowledge learned from games of chance, the option theorists began to understand options well enough to translate their findings into the one true universal language: mathematics.

We will, in essence, become apprentices to these theorists and learn the ropes in a fashion that someone working directly with them might have. Working with the simplest of examples, like coin tosses, we will work our way to the point of understanding the underpinnings of the basic option formulas. We believe that you cannot understand options successfully without fully grasping the implications inherent in the option formulas. It merely means that since the formulas are the heart of the market’s method for valuing options, you cannot possibly understand option markets unless you have a working familiarity with the formulas. This cannot be understood from a distance; you must get up close and personal with it. These formulas, that the academic theorists only uncovered in the 1970s, are largely responsible for fueling the greatest growth and innovation in the history of finance. Without exaggeration, options are the backbone of today’s enormous financial derivatives markets.

But finance is a very broad and diverse area of study. And options are certainly not the only financial derivatives. In our studies we will run into other financial derivatives that are not only important to specialized traders but to us as well. The world of derivatives is one of complex interrelationships. To understand options we must have at least a smattering of knowledge and awareness of several other derivatives. Life is never simple.

Binary options will definitely help you. In order to understand binary options better, read this article once more.