By Darrell Martin
Each month, the WASDE (World Agricultural Supply and Demand Estimates) Report is released. This report generates quite a bit of movement, but the direction is unknown. This is the time to place a strangle on binary options.
A strangle strategy is entered when a trader buys an upper binary contract and sells a lower binary contract. Of course, more than one contract can be done at a time. However, make sure that the contracts are equal on each side of the trade.
A strangle is an excellent strategy to use when there is going to be movement, but the direction is not known. This can especially be the case when certain news is being released, such as the WASDE Report. By buying an upper contract and selling a lower contract at the same time, the trader plans to be covered no matter which direction the market moves.
By using the strangle strategy, a trader was able to make $121.20 in a few minutes. Four Corn (Jul)>376.0 @11.75 contracts were bought and four Corn (Jul)>366.0 @ 84.75 were sold. The >376.0 contract was sold to close @60. The sold contracts lost $61, but when doing a strangle, one side of the trade is expected to lose. The following image shows the trader’s transactions for this strangle.
The risk on the four bought contracts was $47. When you subtract the risk and the $61 loss from the $240 settlement payout, this trade profited $132. After the fees of $10.80 are subtracted, it is evident how the trader profited $121.20 in a short time.
When traders become proficient at using the strangle strategy on the release of the WASDE report, there might be comments similar to another trader who remarked, “Too bad it is only once a month!”
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