Earlier this year, I made a post called Inside the Forex Scam on Instagram about a scam I was seeing a lot on social media when I first started to market this blog there. I have written about financial scams in other posts such as Why Do Smart People Fall for Financial Scams? and touched on them in posts such as Is GE the Next Enron? Which summarized a whole year of research headed by Harry Markopolos, a fellow skeptic and financial expert who media has termed “the accountant who nailed Madoff.”

Scams and financial scams in particular are as old as time. Whether it’s on a grand scale such as Enron or a guy who comments on your Instagram (or IG for the rest of this post) post about how you can get rich quick, the story is the same. People with loose morals attempting to take advantage of their knowledge or information they have to play off your fears or emotions to make a quick buck.

My social media and news media consumption has been on a gradual path downwards lately to be either much lighter or nonexistent on some days for a very specific reason: I am focused on output, not consumption. This has allowed me to take a step back and start to look at the world and the way we interact with each other in a different way. Everything moves faster now with the internet and it spreads all over the world faster.

I see this happening with financial scams as well. Six months ago when I posted about IG financial scams, forex was all the rage, before that someone mentioned to me it was binary options, well now binary options are back and I am here to explain what they are and why they aporreares on IG.

So What Are They?

Having been working in finance or studying it for almost 20 years when I hear a product I have never heard of, especially in a non professional environment like IG, I am skeptical that it even exists. I will explain what an option is below and then delve into the binary part.

1) On Options

To make things simple, let’s take an example. Let’s say there is a stock, maybe Facebook (FB) stock. The price goes up and down everyday, let’s say just for this example it’s around a nice round number like $10 a share.

An option is a contract that “bets” on what the future price of the Facebook share would be within in a certain time period. It is good for a time that can be weeks, months or even a year away and has a price on the underlying stock that it must go above. In this case let’s say I buy an option for $2 on Facebook stock being above $15 in the next 6 months. That $15 bet on the option is called the strike price.

My $2 is spent and gone once I buy it, the $2 goes to the option writer (who made the bet against FB). It isn’t worth anything until FB climbs above $15. Once it does I have the ability to “exercise” or enforce the option and receive the underlying stock. However I need it to get to $17 to get my money back ($2 for my option and the $15 I would need to pay to get the share). If the price goes up, essentially and option gives me the right to buy it later at a price below market, this means I can then sell it for a profit.

As long as the option has not expired, the option contract itself can have value too. Let’s say Facebook shoots to $30, well then my option is worth a lot. $15 to be exact based on the market price of FB (the $15 the option allows me to buy it for plus the $15 option value to get to the market price of $30). I could then sell my option for $15 and make a $13 profit off of my initial $2 investment.

Side Note

What I described above is what is known as an American option. Within the period specified in the option contract, the option can be exercised during that period. So if at any time in the next 6 months Facebook stock goes above $15, I can exercise the option.

In contrast, a European option is where the option can only be executed on a certain date, say February 15, 2020. On that day if the price of FB is above $15 then I can execute. This is important to understand binary options and we will come back to it.

2) The Binary Part

This was the part that confused me a bit. Binary obviously being a reference to on or off. When I looked up what binary options were, I saw the scam immediately.

Binary options are custom contracts where you can offer an option with features even more narrow than the European option described above such as:

A share of FB must be above $15 at 7:32 on September 21, 2019.

Rather than receiving the underlying stock, the binary option simply has an all or nothing payout based on this. It’s essentially a gamble. Now if you are comfortable with what options are and are sophisticated enough to be the one writing the options, you could just make up any song and dance you like, dream up an idea for an option and push it onto social media so people with short attention spans and dreams of getting rich quick get sucked in.

For example here is a way I could make $100 asking unsuspecting folks on IG:

Hi would you like to make money with binary options? The first option is free and has a value of $100. If you make money then you can buy more. You can make as much as $5,000 a day from these options but only if you work with my patented system.

Sounds good right? Well guess what? There is no $100 credit, I made that up. No one is getting $5,000 but if you sign up I will likely get that $100 from you.

How Would it Work?

Continuing with our example, I could say, the $100 binary option “free credit” I am giving you was on FB at $0.03 a share and now the shares are $15, the value of the option is now $500 (15/.03 = 500). I tell you you have the $500 in an account waiting for you to withdraw and try to sucker you in for more. This is the hook.

The next step would be getting you to send real credit card numbers and money and also upping the scam. My IG scammer message may be something like this:

I could get you a lot more, but would need $1,000. If you can get me $1,000, I can get you $5000, $20,000 or even $30,000.

Once you hand over the money or the info, thinking it’s payday, that money just disappears into the pockets of the person or”company” on the other side.

Fast and International

Why this still lingers on IG is testament to how casually lazy and impatient many people are as well as ruthless and immoral on the scammer side to take advantage of people’s lack of knowledge and ignorance. The cases I will name below happened recently and even up to last month but in 2017, the FBI had a Binary Options Summit, to educate people on these scams and I am still seeing them today.

Lee Elbaz was an Isreali who started a few binary option “brokerages” called BigOption and BinaryBook. Her team of employees billed people over years out of millions starting in 2014. Lee probably thought that they were safe if they just scammed people outside of Israel and there would be little repercussions inside her country, wrong.

Worldwide if you do anything that involves US dollars that involves fraud, the US Government gives itself permission to use all its international power to come after you. People and governments have found this out the hard way from places as far flung as London to Mozambique.

Once the scam became popular, regular schmoe scammers in the US got in on the act. Jarred Davis of Ohio was arrested 3 days ago for taking in at least $10 million from victims all over the country and the world via his binary options scam pushed through IG.

Conclusion

Folks, there is no short path to getting rich and famous. Either yo win the lottery, it’s inherited or you have worked your ass off over years through discipline and value added to get rich. What you see on IG is an illusion, if you are younger, take another look at the Fyre Festival documentary. That wasn’t a one off incident, these things are all around us happening every day.

Take a moment to step back, be skeptical, forget the garbage idea of getting rich quick or thinking someone has some secret and take your life into your own hands, you just may rescue your life savings in the process.

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