Digital Options is a trading instrument that allows you to speculate on the extent of the price change, rather than just on the general price direction. If the price of the underlying asset is to reach the threshold selected by the trader (known as the 'strike price'), the payout may get as high as 900%.

KEY TAKEAWAYS

• Digital options are a type of options contract that has a fixed payout if the underlying asset moves past the predetermined threshold or strike price.
• The upfront fee called the premium is the maximum loss for digital options.
• Unlike traditional options, digital options don't convert or exercise to the shares of the underlying asset. 

Pros

• Digital options pay a fixed amount if the underlying asset moves past the predetermined threshold or strike price.

• The maximum loss for digital options is limited to the upfront fee or premium.

• Unlike traditional options, digital options don't convert or exercise to the underlying asset's shares.

Cons

• Digital option's profits are limited to the fixed payout.

• Digital options can be risky if traded on unregulated platforms.

• Investors miss out on price gains after expiry since there's no ownership of the underlying security.