How Binary Options Work
ElectronX Binary Options are cash-settled contracts with a single binary outcome: they pay either $100 or $0 per lot, depending on whether the real-time electricity price for a given hour ends up above (or equal to) or below the prior day's day-ahead market price.
The core idea
A Binary Option is a straightforward directional position on the relationship between two prices:
- The Strike Price: the day-ahead market (DAM) price for that hour and location, set the prior day.
- The Floating Price: the actual real-time price that materializes for the same hour.
If the real-time price meets or exceeds the day-ahead price, the contract settles at $100. If it falls short, the contract settles at $0.
Binary Options do not settle at intermediate values. A buyer who is "right" by $0.01 collects the same $100 as a buyer who is "right" by $50. A seller who is "wrong" by $0.01 loses the same as one who is "wrong" by $50.
This binary structure makes the product particularly useful for expressing a directional view on whether real-time will outperform or underperform the day-ahead forecast, without needing to predict the exact magnitude of the move.
Buyer vs. seller
A buyer (long position) believes the real-time price will be at or above the day-ahead price (Strike Price). The buyer profits if the contract settles at $100 and loses if it settles at $0.
A seller (short position) believes the real-time price will be below the day-ahead price. The seller profits if the contract settles at $0 and loses if it settles at $100.
P&L formulas, where Settlement Value is either $100 or $0:
The execution price as probability
Binary Options trade between $0.00 and $100.00 before settlement. The execution price can be interpreted as the market's implied probability that real-time will exceed day-ahead.
If the market is trading at $65, that means the market collectively puts approximately a 65% probability on real-time finishing at or above the strike. A buyer at $65 risks $65 for a $100 payout, a net profit of $35. A seller at $65 risks $35 for a $65 payout, a net profit of $35.
A full example
Setup: On Monday, the day-ahead market for Tuesday's 1:00 PM CT hour closes at $50/MWh (this becomes the Strike Price). A power consumer (Participant A) is concerned that real-time prices on Tuesday will spike above $50. They buy a Binary Option at $60.
- Execution Price: $60 (implies 60% probability that RT ≥ DA)
- Participant A — long collateral posted: $60 per lot
- Participant B — short collateral posted: $40 per lot ($100 − $60)
Scenario A — Real-time settles at $55 (above strike; $55 > $50): the contract settles at $100. Long P&L: $100 − $60 = +$40 profit. Short P&L: $60 − $100 = −$40 loss.
Scenario B — Real-time settles at $45 (below strike; $45 < $50): the contract settles at $0. Long P&L: $0 − $60 = −$60 loss. Short P&L: $60 − $0 = +$60 profit.
In both cases, the total collateral posted ($60 + $40 = $100) exactly covers the total settlement value — no counterparty risk, no margin calls.
How the strike price is set
The Strike Price is set the day before trading, when the applicable ISO publishes its Day-Ahead Market prices for the corresponding location and hour.
The first published prices are considered final and are not subject to adjustment.
How the floating price (settlement) is calculated
ERCOT
ERCOT publishes Real Time Settlement Point Prices every 15 minutes. For each hourly contract, the arithmetic average of the four 15-minute interval prices for the contract hour is the Floating Price.
For example, the 1:00 AM CT contract uses the average of the four prices ERCOT publishes for: 12:00–12:15 AM, 12:15–12:30 AM, 12:30–12:45 AM, and 12:45–1:00 AM CT.
PJM
PJM publishes verified real-time hourly Locational Marginal Prices the following day between 11:00 AM and 12:00 PM ET (T+1). The verified hourly LMP is the Floating Price for PJM Binary Options. Because PJM settlement occurs the day after expiration, collateral is held overnight.
MISO
MISO publishes a Preliminary Ex-Post hourly Locational Marginal Price the following day by 8:00 AM ET (T+1). That single verified hourly LMP is the Floating Price for MISO Binary Options. Because MISO settlement occurs the day after expiration, collateral is held overnight.
CAISO
CAISO publishes Fifteen-Minute Market (FMM) Locational Marginal Prices every 15 minutes on their OASIS platform. For each hourly contract, the arithmetic average of the four 15-minute interval prices for the contract hour is the Floating Price.
For example, the 1:00 AM PT contract uses the average of the four prices CAISO publishes for: 12:00–12:15 AM, 12:15–12:30 AM, 12:30–12:45 AM, and 12:45–1:00 AM PT.
Settlement rule:
- Settlement Price = $100 if Floating Price ≥ Strike Price
- Settlement Price = $0 if Floating Price < Strike Price
Contract expiry
Binary Options expire at the end of their designated hour. For ERCOT and CAISO contracts, settlement follows immediately using real-time price data published during the hour. For PJM and MISO contracts, the contract closes at expiration but does not settle until verified LMPs are published the following day — PJM between 11:00 AM and 12:00 PM ET, and MISO by 8:00 AM ET.
You can close your position before expiration by entering the opposite side. If you close before expiry, your settlement fee is returned to your Available to Trade balance.
Available contracts
At any given time, 120 contracts are available per instrument: every hour of the next 5 consecutive calendar days (24 hours × 5 days). As each hour expires, a new contract 5 days forward is added automatically.
Available locations
- ERCOT (7 instruments): North Hub, Houston Hub, South Hub, West Hub, Panhandle Hub, Hub Average, Bus Average
- PJM (7 instruments): AEP-Dayton Hub, Eastern Hub, N Illinois Hub, Western Hub, MISO Interface, South Interface, Dominion Zone
- MISO (4 instruments): Indiana Hub, Minnesota Hub, Louisiana Hub, PJM Interface
- CAISO (2 instruments): NP15, SP15
Collateral
Both sides post upfront collateral covering their maximum possible loss.
Total collateral across the long and short sides always equals $100 per lot — the maximum settlement value. This is what makes the system fully collateralized: regardless of outcome, total payout never exceeds total collateral held. Actual Committed Collateral also includes execution, clearing, and settlement fees on top of position collateral.
Trading hours
Monday–Friday, 7:00 AM–8:00 PM CT.
ElectronX's holiday schedule can be found under the Exchange Holidays tab at electronx.com/regulatory.
For trading support, contact support@electronx.com or +1 (312) 256-2978 during market hours (Monday–Friday, 7:00 AM–8:00 PM CT).
If there is any conflict between this website page and the EXI Rulebook, the EXI Rulebook is controlling. Refer to electronx.com/risk-disclosure for full risk disclosures.