By Darrell Martin
Scheduled financial news events can get markets moving but traders must be prepared with strategies that work for market movement long or short. One such strategy is the Straddle using Nadex spreads. Nadex is a US based, CFTC regulated exchange for trading spreads and binaries. Spreads offer a range of a market to trade, long or short and has a floor and a ceiling marking the range. No profits or losses can be made beyond the floor or ceiling. Therefore, spreads provide capped risk.
The Straddle strategy employs two spreads to literally straddle the market in preparation for the market moving in either direction. It’s important to plan to make enough profit to cover both spreads since when one spread profits, the other will lose.
Canada will be releasing three reports on Wednesday, September 7, at 10:00 AM ET, including the Bank of Canada Rate Statement, Overnight Rate and Ivey Purchasing Managers Index. Based on previous market reaction, the market can make a large move in response to these scheduled events.
Straddle The Market With Two Spreads
To set up the Straddle, enter at 9:00 AM ET for 11:00 AM ET expirations. One Nadex USD/CAD spread should be bought with the floor where the market is trading at the time. One spread should also be sold with the ceiling where the market is trading at the time. In this setup, the ceiling of the sold spread meets the floor of the bought spread and is where the market is trading at the time. The two spreads are literally straddling the market.
The risk for each spread should be no more than $20 for a combined risk of $40. The needed move to cover both spreads and make $40 for a 1:1 risk reward ratio is 80 pips up or 80 pips down. Should the market only move 40 pips up or down then the trade would be breakeven. Take profit orders should be placed for capturing profit. Since it is a low risk trade, no stops are necessary.
When one spread profits, the other spread can be left on. The market could pull back far enough for the other spread to either cost less, break even or also make some profit.
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