A binary Option is all about playing a guessing game.
It works like this. You take out your calendar and throw out a guess. You get asked , “Will X stock will be at Y price by Z date”.
Then you answer.
If the question is, “Will Enron Stock be at $100 by August 29th?” you could say yes or no. Oil is trending down, so I would say no.
This means I would sell my option. I do not think the market will bring the stock to that price point.
You then attach a wager to the option. You put a price margin to buy or sell with. From zero to one hundred dollars. What ever you option is you risk limit. You can not lose more than the wager. This is why some will call Binary Options financial gambling.
You then decide to hold or sell the option before the specified date. In this case, I would hold the option until the 29th. If I am right, I get a my one hundred dollars.
The caveat is you can always cut your losses and sell early, or lock in the rate it is at now. Binary options require you to pay attention to the market. If you figure out financial trends, you can make a killing. Your financial advisor will think you can tell the future with just a little experience.