How To Play Google Earnings In A Volatile Market Using Nadex 11/07/2014


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By Darrell Martin

Each quarter, Google reports its earnings and that provides opportunities to trade various markets. If you’re trading using Nadex, when Google earnings are announced, it affects US Tech 100 (underlying E-mini NASDAQ 100). Historically, when Google moves, NASDAQ moves, and they are usually pretty big moves. Before the earnings report is released, you want to find the best setup for your trade. This report is released at 4:00PM, but sometimes it is released early and you want to be ready.

On Thursday, October 16, 2014, during the Diagnostic Trading Hour, Darrell Martin gave his listeners ideas on how to play Google earnings while using Nadex even in a volatile market. As you will recall, the market that week had been highly volatile causing strike prices to move to the center.

When Martin was first analyzing the possibilities around 1:30 PM, he mentioned that Google had been down, but had moved up and that if it had much more of a move, it would make it very difficult to find any binary option contracts. To figure out how to play this trade, Martin explained that you need to know what the expected move is going to be. He had already plotted where the expected ranges on NASDAQ would be. He said that he anticipated that the move would exceed the expected move, simply because the implied volatility is so high and then the earnings report comes out which also causes volatility in the market. Those two things combined makes this trade extremely difficult.

Martin said that for this trade he would normally recommend a one deviation strangle. When consulting the charts, he said that his safe lower number would be 3752 with his upper expected move would be to around 3796. Because of the high volatility, there are a lot more strikes trading at closer to $50 right now than normal, but the highest contract available is the 3788. With normal volatility, you could probably entered this trade for $30-40 at the most. If you did it right now, it would be over $100 and you wouldn’t even be able to break even. The following image shows the abundance of strikes priced around $50 with the highest contract available being 3788.

This makes it impossible to do a strangle strategy, but this is an important lesson to learn. When considering this news trade, you have to have the 4:15 PM expiration to give the market that much time to move. The report comes out at 4:00 PM, so there is 15 minutes to let the market move. It’s important to have a trade plan to know what to do and when to execute a trade, but it is just as important to know when not to execute a trade. When the implied volatility is high, this is a trade that is not going to work as well. This is a trade that is going to work well on low implied volatility.

Martin likened this to playing golf. It’s nice to have a really great putter for putting, when you’re up there on the green, but it doesn’t do you any good when you’re back trying to drive and make it go really far. When you are going for a trade that you want to go really far, you need cheap OTM (Out of the Money) binaries, and if they aren’t there, you’re going to put up a lot more risk than you’d be comfortable with. This time you’re looking to drive and all you have is a putter. This is not going to be a good play right now. Maybe you’re in the sand trap. You shouldn’t be pulling out your putter or driver. If anything, you should pull out your sand wedge. You can’t use your normal club. For this trade right now, it is currently out of the question. Things could change. He suggested that traders monitor the markets between the time he was talking and when the announcement came out. He told them that if implied volatility or the market comes down, there might be some strikes. If so, reset the expected ranges, look at the binary prices and see if a trade becomes available.

Is there another potential play? What about a straddle with a 1:1 ratio? Martin suggested using the Apex Spread scanner to make it easier to search for potential straddles at which point, he noted that there were not too many good options. He found one, but it would have had to move up 25 points just to break even. When trading NASDAQ (US Tech 100) on Nadex, that is probably not the wisest move you could make. Martin decided that like the strangles on binaries, the straddles on spreads were just not available at that time. One other option he addressed was to simply trade the charts. He reminded his listeners that because everything is pushed towards the center, the price will move a lot slower.

Final wisdom for this play on Google from Martin was that directional plays were probably the best for this trade today. He pointed out that Nadex needed to relist some upper strikes so there would be contracts available. There were plenty of OTM sell contracts, but no OTM buy contracts. He admonished his audience to check to see if Nadex might add on any strikes and to check to see if they would by 3:00 PM or 3:15 PM.

It’s an important lesson to learn in trading that no matter how much you want to enter the trade and have it work out in your favor, if the trade is not there, don’t push it. Always have a plan and stick to that plan, even when the market is volatile and the strikes are not where you thought they would be.

If you would like to learn more strategies and systems to use when trading, go to www.apexinvesting.com. Apex Investing Institute offers free education, and free access to the Nadex Binary and Spread Scanner Analyzers. Member traders are invited to trade in the chat rooms, take advantage of trade signal services, have key indicators and access the Apex Forum. The forum content is updated daily and includes over 8000 members. In a supportive learning community of seasoned as well as up and coming traders, traders of all levels learn how to trade Nadex binaries and spreads in depth, as well as futures, forex, stock and options, and gain an edge for successful trading overall.

Read more: http://www.benzinga.com/markets/bina…et-using-nadex