A binary option pays a fixed amount if the strike price is reached. The predetermined fixed amount is not related to the amount by which the underlying asset price is above or below the strike.

Unlike standard options which have a smooth, linear payoff profile, binary options have discontinuous payoffs (all or nothing) depending on whether or not the price of the underlying meets some predetermined condition. Binary options can be either path-dependent or path-independent.

(digital options) Options where the payout is either a previously agreed amount (usually fixed) or zero, depending on whether an agreed condition is fulfilled or not.