What Does Strike Width Mean?

The strike width is the distance between strike prices, measured in ticks, points, or pips. Every binary option has its own strike price and a market will have multiple binary options available to trade at different price levels.

In general, the strike width varies with the duration of the binary option contract. Longer-duration contracts tend to have wider strike widths. Shorter-term binaries tend to have narrower strike widths.

Strike width is correlated with duration

What is Strike Width?The main reason for this correlation of strike width to contract duration is this: a market can move further if it has more time to move. With less time available, the market is unlikely to move very far up or down.

For example, if a binary option has only an hour left until expiration, its underlying market can only move so far in that amount of time. The market price is likely to stay within a certain range. Thus, the available strike prices will be spaced closer together, so traders can take positions with precision. In other words, the strike width will be small.

On the other hand, if a binary option has several hours or days until expiration, the underlying market could do a lot in that time. It might move a large distance up or down. In other words, it has a higher probability of moving through a wide range of prices during that longer time period. To reflect this higher probability, the strike widths are also likely to be larger. That is, the strike prices are likely to be spaced farther apart.

Nadex may adjust strike widths in volatile markets

Nadex can and sometimes does add additional strike prices to a market prior to expiration. This typically happens if the underlying market has moved to a level where there are few or no strikes available to trade. Most often, this is a volatile market, such as crude oil. To make the new price levels tradeable, Nadex will add new binary option contracts at strike prices close to the new market price range and adjust the strike width as needed.

See all glossary trading terms

A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z