A digital option contract pays out a fixed amount on the condition that a certain event happens, while paying 0 otherwise. At expiry the payoff for the Long side is:
$$ N\mathbb{I}_{S\geq K} $$
for digital call option, where:
For a digital put option, the inequality is reversed:
$$ N\mathbb{I}_{S< K} $$
Payoff profile of a digital call for $N=100$ and $K=100$
Payoff profile of a digital call for $N=100$ and $K=100$
Alice and Bob enter in a Digital Call option contract on SOL/USD. The contract has a digital of 100 USDC, and the strike is set to $30. Alice deposits the option premium of 25 USDC, while Bob deposits 100 USDC as collateral (the max payout).
After 1 week has passed, the profit & loss will depend on the final price of SOL/USD: