By Darrell Martin
The Bank of Canada (BOC) uses the interest rate statement as their main opportunity to tell investors what they’re thinking regarding monetary policy.
As is the case in other countries, this statement includes their decision on the interest rate and also their commentary on economic conditions currently. Traders also look for clues as to what future decisions the BOC may make as well. The release comes out at 10:00 AM EST Wednesday, March 4, 2015, and provides a trade opportunity for a 9:00 AM EST Iron Condor set up on the USD/CAD using Nadex spreads.
Look For News Events With Consistent Market Reaction
News events that offer consistent market reaction provide good probabilities for traders. Apex Investing, in their continued analysis of the markets after news events, has found that in the last 24 releases the USD/CAD moved an average of 30 pips and then pulled back.
This makes for an excellent opportunity for the neutral Iron Condor strategy using Nadex Spreads. To set up your trade you would buy the lower spread and sell the upper spread.
The ceiling of the lower spread and floor of the upper spread should meet together where the underlying of the current market is trading. For this trade you want your spreads to offer a profit potential of $30 or more. If you bought your lower spread for $15 and sold your lower spread for $15 this would be a good setup.
You can enter as early as 9:00 AM EST for an 11:00 AM EST expiration. Leaving your spreads on until expiration will give your trade plenty of time to play out.
The Market Doesn’t Have To Move For The Trade To Profit
In this trade strategy you are looking for implied volatility in the price of the spreads to build an Iron Condor with a profit potential of $30 or more. If a $30 profit potential seems too little, you can always trade more spreads.
Just be sure to trade the same number of spreads on both sides. News events often create implied volatility in prices. The USD/CAD usually will move after the news event and then pull back. If you bought your lower spread for $15 and sold your upper spread for $15 like the example above, the market could stay where it started and you would make max profit.
If the market moves 15 pips up or down from where it started, you would profit $15. If the market moved up or down 30 pips from where it started you would break even. For a 1:1 max risk reward ratio the market could move up or down 60 pips.
Since the average move has been 30 pips over the last 24 months, the probabilities of the market moving 60 pips in one direction and not pulling back is low.
If you’d like to learn more about Nadex spreads and see a calendar of news events with recommended strategies you can visit www.apexinvesting.com.