A binary outcome in the stock market and business world is an event that has two possible results, one typically being positive, the other negative.
Examples of binary outcomes abound, particularly in the field of biotechnology and biotechnology investing. Think of a biotech company awaiting FDA approval for a promising new drug. The agency will eventually make a yes-no decision. This binary outcome adds significant risk for investors, as a yes could multiply the stock price while a no could render the company nearly worthless.
Broadening beyond corporate outcomes and looking elsewhere in the investing world, consider call options or put options. As each approaches its strike date, investors holding these options will either get in-the-money payouts at or beyond the strike price, or watch their options expire, worthless. Binary outcomes.
Investors who put their capital at binary-outcome risk should go in eyes wide open.
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