Subject and Keywords:
The paper presents characteristics of binary option belonging to the group of exotic options. Exotic option is a non standard option. Binary options are options with discontinuous payoffs. A simple example of a binary option is a cash or nothing call and cash or nothing put. Another type of binary option is an asset or nothing call and asset or nothing put. A regular European call option is equivalent to a long position in an asset or nothing call and a short position in a cash or nothing call, where the cash payoff in the cash or nothing call equals the strike price. Similarly, a regular European put option is equivalent to a long position in a cash or nothing put and a short position in an asset or nothing put where the cash payoff on the cash or nothing put equals the strike price. In Poland, the first binary option has started in June 2009. The underlying instrument is WIG20, with expiration dates ranging from between one week and six months.