A type of binary option (digital option) whose payoff depends on how much two assets (the pair) perform with respect to each others. More specifically, the payoff is based on how much the first asset outperforms the other during a specific period of time, regardless of the amount, and implicitly of the direction of underlying prices. Pair options and binary options are similar in the sense that both have only two outcomes on which the payoff is determined. However, pair options don’t require that the holder predict the direction of the underlying price movement. All the holder has to do is bet on which asset out of the two in the pair will fare better than the other by a specific time.
Pair options are a relatively new bread of options which enable traders to speculate on the relative performance a pair of assets. They also allow for much more flexibility with risk control than ordinary binary options. There are two main types of pair options contracts: fixed pair options and floating pair options.
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