Lost in Space with Alien Spreads

#1

I’ve watched the entire Nadex Spreads 101 course, and I’m now into the scanner training. However, I still feel so lost in my basic understanding of spreads.

OK…with regular BO’s you are saying “true” or “false” to the statement. Simple to wrap my brain around.

But with spreads, I don’t understand the basics of the theory behind it. Say price is at 12.04567 and the spread is 12.0000 - 13000 and I buy it. Am I basically saying I believe the price will go up? And what if I sold this same spread, do I make money if it drops below 12.04567?

Or would I be better off to “BUY” a spread that is already below the indicative price? Assuming I think market is dropping. OR would I SELL a spread that is already below the indicative price?

This is what I’m not wrapping my brain around. What to do based on where I think the market is going. I get that you make money once it hits the bid/offer price you paid and surpasses it. I get that part. I just DON"T get what to look for when I think market is going in a certain direction.

Help please…I’m floating around in a lonely universe with Alien spreads!!! aggghhhh!

#2

You have the basic idea! When you buy a spread (your example) at 12.04567, and the price of the indicative goes up, you will be able to sell it back at a profit. The same goes true if you sold at the same price and the market went down. You could then buy back at a profit.

On buying a spread that is below the indicative, however, there is a problem. The market would have to move a great distance in order for you to make any money. It may not reasonably be able to make that move before the spread expires. If you think the market is heading down, the more prudent play may be to find a spread where the market price is near the _middle of the spread_and sell the spread at that point. Two big reasons for that idea are: 1: the market doesn’t have to move very far for you to show a profit, 2, By being in the middle of the spread, you are getting a better 1:1 move with the indicative market. i.e more bang for your risked buck. When you buy or sell spreads that are OTM it takes a huge market move to gain a small profit.

Bottom line, once you think you know where the market is going, find a spread where the price is in the middle and jump on! (Don’t forget your protective stops) The scanner is really good at helping you find the sweet spot for this. Takes a little practice, but you will begin to see it!

Hopefully helpful!

Here are a couple of screen shots to help.

#3

One other point, just to be clear. (This may be a “duh” statement, so just overlook me). Buying when you think the market is going up, and selling when the market is going down, is done exactly the same with spreads as with binaries. The beauty of spreads is that they give you a little wider margin of error, so to speak, than binaries. In other words, “Buy low, sell high” works on spreads too. : )

#4

I am about to finish my spreads 101 course and headed to the scanner training a little confusing but I believe I have the basic idea will watch the videos over to make sure I got it.

#5

Thank you so much for your help and screenshots! Helped a LOT. Even your duh statement :smile:

What I am still a bit foggy on is this: If I think the market is going down do I buy the spread under the price of the market or sell the spread thats under the price? I guess I’m over thinking this. As you basically already answered that! LoL

I just can’t get the binary thing out of my head…where sell means you dont think price is going there.

#6

Is there an easy way to find a spread where the indicative is in the middle? I have the scanner loaded. I can do the math…just wondering if there is a shortcut.

#7

There are two short cuts.

First is is sort of a short cut. It won’t show what is squarely in the middle, but it will eliminate those spreads that are not even in the money. On the left pane of the scanner, under where you select which markets you are interested in, you can do more of an “advanced search” for spreads. Once you get these spreads listed, you can click on the area that lists the premium and proximity for each spread. The graph will appear for that particular spread and you can see where the price is. It’s an easy visual search at that point to find a spread where the market is nearest it’s midpoint.

By selecting the ITS button, only spreads will be shown where the market is currently trading In The Spread (ITS). Again, this doesn’t show the spreads where the market is trading at its midpoint, but it eliminates those that are simply not even candidates. This cuts down on some math and makes the selection process go a little quicker.

Second option is to go to the the master spreads. (The really wide ones with longer expirations at the bottom), are usually good go-to candidates for finding a spread with the market nearer its middle). They are more expensive because they are wider spreads than all the others, but with protective stops in place, your real risk is the same as a less expensive spread, with (sometimes) more profit potential due to their extended floors and ceilings.

Here is a screen shot that may help!

#8

Also finishing up the spreads 101. Am I correct that a straddle is basically the opposite of an iron condor, as in you expect a big move as opposed to little movement? If so, would that be something to look at say at the market open(London, US) or with news?

#9

Good basic idea. Iron condors and Straddles are both strategies involving spreads.

Iron condors are often when the market is expecting a little volatility, but not necessarily a big sustained move in one direction; i.e. some news events. This is a premium collection trade.

Straddles are often used ahead of events that often have the potential to move the markets in drastic fashion. One spread (of the straddle) will profit while the other loses. For the straddle to be profitable, the winning side has to outperform the losing side. If the market remains quiet or simply doesn’t move much, then the straddle will most likely not profit.

#10

The worst thing you can do, and the best way to confuse yourself is to think of spreads like a binary. Forget everything you know about binaries! Do not think of them the same way, they are two totally separate products and work totally differently. You may want to review the spreads 101 course again, but also check out some of these webinars here to clear up some misconceptions: https://forum.apexinvesting.com/c/watch-webinars-here/nadex-spread-webinars