By Darrell Martin
The Swiss Retail Sales report comes out at 3:15 AM EST Monday, March 9, 2015, while most people are sleeping, at least in the US. There is still a way to trade this news report however. Since statistically this report moves the market an average of 30 pips and then pulls back, a neutral strategy like an Iron Condor is recommended. With this strategy you can profit from time premium while the market makes a modest move and hopefully returns to center. Using Nadex spreads you can place your trade the night before at 11:00 PM EST and let the trade play out.
Put The Trade On And Go To Bed
To place the trade at 11:00 PM Sunday the night before, you will look for two Nadex spreads on the USD/CHF entering as early as 11:00 PM EST for a 7:00 AM EST Monday expiration. Based on 24 months of past reports and the market’s reaction to them as well as closely looking at the last 12 months specifically, it was found by Apex Investing that the average move was 30 pips. Therefore, it’s recommended to build an Iron Condor with a profit potential of 30 pips or more. To do this you want to buy the lower spread with the ceiling currently where the underlying market, the USD/CHF, is trading and sell an upper spread with the floor where the underlying market is trading. Once your trade is on you can go to bed and revisit it in the morning.
The Retail Sales report is released by Switzerland’s Federal Statistical Office. It’s a measurement of change in the total value of inflation-adjusted sales in retail. Consumer spending accounts for the majority of economic activity overall, and retail spending is the indicator for consumer spending.
Be Sure To Trade The Same Number Of Spreads On Each Side
The Iron Condor has a wide wing span which allows for the market to move quite a bit and still be break even or at a max risk reward ratio of 1:1. For example if you bought your lower spread for $15 and sold your upper spread for $15 the market could move 60 pips in either direction and still have a 1:1 max risk reward ratio. Probabilities based on research show the move to be around 30 pips and pull back. If the market made that move directly after the news announcement and pulled back to between your spreads, where the floor of your upper spread and ceiling of your lower spread come together, you would make your max profit of $30.
Now you can always trade more than one spread on each side, as long as you trade the same number on each side. Further, if the market only moved 15 pips up you would make $15 on the lower bought spread and break even on your upper sold spread. Your profit would be the same if it moved 15 pips in the opposite direction.
To be breakeven on the entire trade, the market would have to move 30 pips in one direction and remain there until expiration. It is recommended to leave the spread on until expiration to give the market ample time to move back to center and to let time pass in order to profit on the time premium.
For example insurance companies charge a premium for insurance and if you were to cancel in the middle of the term you would only receive half of your money back. The insurance company has earned the first half of the premium because half of the time on the policy has passed. It is the same with time premium in Nadex spreads.
If the market remains in the middle between the spreads and is there at expiration, the price of the spreads would be at market and you would make your max profit. If, however, you are unable to find spreads that provide at least a $30 profit potential, then there is no trade.
To learn more about how to trade news events you can visit www.apexinvesting.com. There you can find a news calendar of scheduled events and strategies to trade them.