Range options are based on predicting whether the underlying asset stays within a predetermined value range within the set time. When investing in a range option the trader will be given three values for the underlying asset:
- The market rate at the time of the trade
- An upper boundary rate (a price higher than the market rate)
- A lower boundary rate (a price lower than the market rate)
The trader then has two choices: either the underlying value of the asset stays within the upper and the lower boundary, or the underlying value goes out of range. An ‘in range’ option will be in the money when after the set time the underlying value is within the lower and upper boundary values. An ‘out of range’ option will be in the money when the underlying value is anywhere outside the boundaries after the expiry time.