Binaries

S4 - Select - Underlying Markets nadex binaries
41

Darrell - the deviation levels that you provide are based off the closing price and implied volatility, more or less, right?

So, if that is the case and the probability of these results is a bell shaped curve, then the middle of the curve is the close price (settlement price).

Following that, then isn’t the highest probability of settlement in our favor (lowest risk, best reward) is when the underlying price is at/or near the close price used for the deviation calculations, and we use the +/- .5 deviation strikes for our binaries?

Since the underlying’s price oscillates during the day, we may not be able to buy right at that price which provides the best risk profile for us. Or, we don’t want to sit at the computer all day to wait for it to come back to the close price.

But, we can approximate what the price would be of the +/- .5 deviations when the underlying is at the close price using the NADEX price ladder. It seems that the .5 deviations are about 2 strike prices away from the close, and the .7 is about 3 strike prices away.

I don’t think the .7 dev level would be realistic as it is sometimes too far away and may never be filled. The .5 dev level is more realistic, and should contain 68% of the expected price movement.

Couldn’t you place orders for the +/- .5 dev levels at the market open (or before) using the expected price for that strike price by moving up or down 2 strikes prices on the NADEX ladder?

42

They are based on settlement price. This is a bit different than last trade price sometimes it is the same sometimes it is differnt. Hedge funds, floor traders and professional traders us settlement price. See historical deviations page to learn more about settlement.

Implied volatility is gather from 4 options for up to 3 months of contract for a total of 12 IV’s making a IV index for each market.

It is then factoried into a short term 1 day to 5 day deviation formula. The levels posted are currently 1 day deviations.

“isn’t the highest probability of settlement in our favor (lowest risk, best reward) is when the underlying price is at/or near the close price used for the deviation calculations, and we use the +/- .5 deviation strikes for our binaries?” - all depends on what strategy you are doing

note a deviation is probability of touching not probability of expiring so it may move to a deviation level and then go back up/down to the previous days settlement

Since the underlying’s price oscillates during the day, we may not be able to buy right at that price which provides the best risk profile for us. Or, we don’t want to sit at the computer all day to wait for it to come back to the close price. depends on strategy - how do you defined the right price and best risk profile?

But, we can approximate what the price would be of the +/- .5 deviations when the underlying is at the close price using the NADEX price ladder. It seems that the .5 deviations are about 2 strike prices away from the close, and the .7 is about 3 strike prices away. You can estimate price absent of time…as time passes price will change. Deviation levels can fluctuate depending on the IV in the market for that day. The strikes are always the same width apart so .5 2 strikes away may work today but not tomorrow.

I don’t think the .7 dev level would be realistic as it is sometimes too far away and may never be filled. The .5 dev level is more realistic, and should contain 68% of the expected price movement. .7 not realist for what…may not be filled at what price…meanng entry or exit? +1 or -1 are for a 68% of realistic expected movement in a day - so +.5-.5 are half that 34% of all expected move in a day - meaning there is a 76% chance it will touch/go beyond these levels sometime between the market close of yesterday and the market close of today (including overnight)

Couldn’t you place orders for the +/- .5 dev levels at the market open (or before) using the expected price for that strike price by moving up or down 2 strikes prices on the NADEX ladder? you could place order for the +5 and -5 deviation levels at the market price at anytime after the binaries start trading until a few minutes before the close - 2 strikes is not a consistent thing as discussed above as the deviations vary but the strikes are consistently the same width - i.e. US 500 is always 3 strikes apart - sometimes 1 deviation if 15 pts on es other times it could be only 8 points - so a 2 strike count would not tell you a deviation

All of the above depends on what strategy you are using - buy/sell or straddle etc… what system rules for entry and exit - and style (deviation levels, volume apex pattern etc…) to read the market

Can you expound further on these 3 area regarding how you want to use them and i can give a more direct response…

[quote=dca78_00]Darrell - the deviation levels that you provide are based off the closing price and implied volatility, more or less, right?

So, if that is the case and the probability of these results is a bell shaped curve, then the middle of the curve is the close price (settlement price).

Following that, then isn’t the highest probability of settlement in our favor (lowest risk, best reward) is when the underlying price is at/or near the close price used for the deviation calculations, and we use the +/- .5 deviation strikes for our binaries?

Since the underlying’s price oscillates during the day, we may not be able to buy right at that price which provides the best risk profile for us. Or, we don’t want to sit at the computer all day to wait for it to come back to the close price.

But, we can approximate what the price would be of the +/- .5 deviations when the underlying is at the close price using the NADEX price ladder. It seems that the .5 deviations are about 2 strike prices away from the close, and the .7 is about 3 strike prices away.

I don’t think the .7 dev level would be realistic as it is sometimes too far away and may never be filled. The .5 dev level is more realistic, and should contain 68% of the expected price movement.

Couldn’t you place orders for the +/- .5 dev levels at the market open (or before) using the expected price for that strike price by moving up or down 2 strikes prices on the NADEX ladder?[/quote]

43

Okay, let’s see if I can explain this a little better. I think that the deviation levels you provide are amazingly good. I also think that there should be a relatively simple way to incorporate them into a trading strategy using binaries that has a reasonable probability of us winning. I originally wanted a set it and forget it type strategy that opened positions at the market open and then left them on until expiration.

Well, I have been working on the other Iron Condor type strategy that we talked about on the US 500 only, and it is profitable (at least for the 4 days I have been testing). While the system (which I will post later today with results and charts) is profitable, you certainly get outside a comfortable (1:1) risk:reward scenario. For example, if you are selling the .7 deviation, but the underlying price is down near the -.7 dev level, then you are looking at something like a $90 risk for a $10 reward ( I know… that is what you told me before). Granted, it has worked out the few days that I have been testing, but a few times where it doesn’t work, and well blowout here I come, so that led me to what I was talking about before.

Looking at your deviation levels, settlement prices, and probabilities, I surmised that if you could place an Iron Condor type binary on the +/-.7 deviation levels (sell the .7, and buy the -.7) when the underlying is near the settlement price, that would maximize the possibility that both sides of the condor would be profitable. The question, or problem, then becomes how to buy and sell the legs of the IC when the underlying’s price is most advantageous…meaning something close to 1:1.

My first thought was to use the price ladder, but after looking more at it, that doesn’t seem too good an idea as the prices fluctuate based on distance and time.

The only other thing is to sit and wait until the underlying price hits near the settlement price, and then buy the -.7 dev level strike, and sell the .7 dev level strike. For example, using today’s ES 5 min chart (3Dec), the settlement price yesterday was 1415.5, you would have had 4 opportunities to open your position where the underlying was at (or near) yesterday’s settlement price. Those times were between 0900 - 0910, 0930 - 0950, 1050 - 1100, and 1125 - 1135, at least as of the time that I am writing this…

My thinking is that if there is 64% chance that the price will be between .7 and -.7 deviation, then waiting until the underlying price hits near settlement price gives you the best chance at a profitable system. 64% of the time the price should fall between those two levels, and during the other 36%, one side of the IC should be profitable and the other would be at max loss, or less if you decided to close earlier.

Maybe the IC is not the way to go, but it seems like with a 64% probability that the price falls somewhere between the +/-.7 deviation levels, there ought to be a way to make that work for us into a winning strategy.

44

for a 1:1 you would simply enter the trades at a $25 risk on both sides and let them fluctuate (it wold be 1:1 if both sides got filled

68% but close enough…

So what can be done to fix this issue? - collect more premium is one solution - but you will probably have to get closer which increases risk of loss…or you could say collect 25 on each side and let the market oscillation fill you - so you get a $50 credit

i laid this out in the previous post with these 2 scenarios - does this help? - the major issue here is one side does not get filled - and the risk not being capped out by exiting…

you can do a sit it and forget it on entry then take profit - but you can’t do it on stop loss (and would not want to as binaries can get crazy volatile) - so on stop you have to manually exit when a price is hit (ie the binary strike)

50 profit 50 profit 50 profit 50 profit 50 profit 50 profit 50 profit -75 loss -75 loss -75 loss 125 NET Profit (not including fees)

but if one side is not filled half the time (which is likely then the r/r changes drastically) so how do we solve the r/r/ issue

Now if we waited for each side to get filled at 25 and only got filled on one side half the time the following would play out

50 profit filled both 3 50 profit filled both 3 50 profit filled both 3 25 profit filled one side 2 25 profit filled one side 2 25 profit filled one side 2 -28 loss filled one side 1 -28 loss filled one side 1 -53 loss filled both 3 -53 loss filled both 3 63 NET Profit (not including fees) 20.7 commission

net $42.30 after commissions

this is not a bad scenario - consider this - you are putting up $150 of risk per trade $75 on both sides -

after 10 trades you netted 42.30 on the consistent use of $175 - that is a net profit of 28% every 2 weeks if done daily

the challenge is making sure you are available to close the trade when it hits the strike - so you will need an alert to go off at least 1 strike away if not more for text or computer alert - i.e. Ninja can be programmed to do this, TOS can easily do this (need funded live account for live data), Tradestation, MT4 programmed etc… - and then sit there and baby sit it to exit at market if it gets to the strike - so this brings the challenge of planability also you must have the razor sharp discipline to close it when the strike is hit and enter the order correctly

45

now here is another thought

and it seems a bit backwards but hear me out

profitability and probability must be balanced out…what we have seen thus far is that though the probabiilty is good - the profitability (what you make on a profitable trade versus what you lose on an unprofitable trade is not working out that well) plus it is requiring more time and adjustments which interferes with the sit it and forget it planability aspect

This method would require a bit more “mental” toughness as it will involve more losses but when you are profitable you make 4x what you make when you lose… so 1 profitable trade would cover 4 losing trades

what is funny as traders is we get more punishment in our head from a losing trade than we do from the size of the loss…

wondering if this is true - we would almost rather do premium collection as stated earlier in the post as it wins 70% of the time (we love winning 70% of the time) - even though the loss can be 2-4x bigger than a profitable trade…but hey we only lose 30% of the time… until we lose 40 or 50% and then blow out…

so taking that into consideration - lets check this out…again 1 profitable trade would cover 4 losing trades

what if you bought the .7 and -.7 strikes - at the $10 risk on each side that you mention…

that would be a $20 risk -

if the market stays in that range 70% of the time you will lose 7 out of 10 and profit on 3 out of 10

you would actually make $100 you could actually only win 2 out of 10 and would still be profitable (not include fees) -

80 profit 80 profit 80 profit -20 loss -20 loss -20 loss -20 loss -20 loss -20 loss -20 loss 100 NET Profit (not including fees)

win only 40% of the time profit goes up by double 80 profit 80 profit 80 profit 80 profit -20 loss -20 loss -20 loss -20 loss -20 loss -20 loss 200 NET Profit (not including fees)

profit 50% of the time - profit triples from only winning 3 out of 10 80 profit 80 profit 80 profit 80 profit 80 loss -20 loss -20 loss -20 loss -20 loss -20 loss 300 NET Profit (not including fees)

the trade would have to be done consistently to be able to work

note another improvement is to add a take profit at say 96 on the bought side and at 4 on the sold side - this removes the risk of it losing after being profitabile and gives the market the ability to swing and possible make money in both directions - and since you can enter and then set take profit orders and walk works with a set it and forget it strategy

the only downside if you have to be willing to whether the losses - but when the profits happen we will be ecsatic and have to ride that through the next few losses…

Thoughts…?

46

I’m almost with you…I am going to demo it tomorrow and see what the numbers fall out as…I’ll test it on something other than the ES, have too many orders with testing the other strategy.

Do you mind if I post links to photobucket for the chart pictures? I couldn’t compress them down enought o meet the restrictions in the forum.

47

That is fine - just post the photobucket link on here…

Use either snagit by techsmith or snippet on windows 7 and above and the images will be small enough for the forum

48

Darrell - I demo’d waiting for the underlying price to reach yesterday’s settlement price, and then looked at what the +/-.7 strike price was (from para 5 on post 43). I don’t think that is a viable strategy, as the bid/offer prices were so low.

This is what I saw today: US TECH 100 the price reached the settlement price (2670) around 0815 CST. The bid/offer of the .7 deviation level was 9.00/12.00, and the bid/offer of the -.7 deviation level was 85.00/88.00

Wal ST 30 the price reached settlement price (12950) around 0810 CST. The bid/offer of the .7 deviation level was 7.00/10.00, and the bid/offer of the -.7 deviation level was 92.50/95.00

So, that doesn’t look like it will work, but it was worth giving a shot.

49

you want the price/risk to be low - if doing it as a long straddle - instead of as a sold/short straddle/iron straddle/iron condor

as when the trade profits you want to make enough to cover numerous losses…

expect it to lose 70% of the time - the 30% of the time is when the money is made - this strategy requires you to hold till expiraiton

50

Some general questions about trading the daily fx pair binaries:

  1. When considering trading daily fx binary straddles, would it be beneficial to average the daily fx deviation levels (price moves up & down) over say the past week to set profit targets going forward on the next day’s daily binaries? Possibly just to get a better chance on locking in some profit when we set our buy stops or sell stops…since we cannot sit by our computer 21 hours straight OR even trade fast enough when fast price moves are occurring? What deviation levels would you recommend?

  2. Or could we just historically compare past fx daily deviation levels to the fx daily binary strikes to get a good idea of which fx pairs crossed and hit the most strikes; up and down?

  3. Is Nadex contemplating any type of alert system on price movement so we can be alerted to a price level that we wish to be alerted at?

  4. Do all forex pairs and their fx strike levels have built in equalized price moves by Nadex…equalized between all the 8 different forex pair strike levels?

Thanks Darrell

51

Is this the only feasible way to hit those +7 and -7 deviation strikes? wait for the market to retrace to previous day settlement? It seems the strategy outlined in post #45 would be difficult on Forex pairs as it seems the pairs often open far away from the previous day’s settlement.

Are there specific indices and pairs that might be easier to stick with in terms of higher likelihood of them starting near or retracing back to previous settlement? Or is there a way to “Kentucky windage” placing these trades when the market is trending near a deviation level already?

Thoughts?

52

Also, for clarification, you are BUYing the +.7 and SELLing the -.7 Correct?

53

Ronin - sorry I have been on vacation for awhile. I was going to post a thread on the strategy I tested (which was profitable, but not by much) here in the forum, so that others here might be able to improve on it. All my stuff is on my computer at home, will get it written up and on the forum in about a week.

The basic idea was to put a set of trades on that had a decent risk/reward, using the deviation levels as a starting point, that could be placed and left on until expiry. I wanted a set it and forget it type approach. So, I looked at the deviation levels as essentially containment. 63 percent or so of the price movement should be contained by the .7/-.7 deviation levels. So I was SELLING the .7 and BUYING the -.7.

The problem I found, though, was that sometimes price doesn’t extend far enough in either way to fill your price. When I get back home, I have all the screenshots of the week I tested this to show what I am talking about.

I only tested this on the US 500, I didn’t test on FX. Although, having traded FX in the past, the more volatile nature of the FX market may get better fills.

Once I get back, I will post a new thread on this so it doesn’t get buried.

Have a great new year!!!

54
  1. the average does not really matter only the current day matters so I doubt this would be beneficial. I use all the deviation levels we post. On NT7 we show the current and historical levels. I like to use the tool i went over in the most recent webinar to help me to determine direction close to expiration for low risk high reward trades …it monitors electronic noise http://apexinvesting.net/noise “http://apexinvesting.net/noise” I believe ALERT7 will give you 50% off a 6 month subscription but don’t know how long the coupon will be good for…

You can’t use stops on nadex only limits…So once entered you set a take profit…if trading longer term - i enter based on apex signal using apex renko bars (with volatile trend line going in same direction as apex signal) then target a strike based on a deviation level with a good risk/reward ratio…

For straddles this is harder…I usually only do straddles on news where i expect at .7 to 1 deviation move (or if the news happens close to expiration possibly at .5 deviation level on both sides…

  1. whatever they did in the past does not mean they will do it in the future - but yes this is a great idea using the historic levels plotted in ninja to see which ones most often cross certain deviations in recent history (i.e. last couple weeks)

  2. you can always suggest it to them - but since they are a derivative and don’t quote the underlying market I doubt it - for something like this use Ninjatrader or TOS (TOS has if funded and live has a great alert system - i put my text email in there ie [email protected] to get text alerts on price levels)

  3. no all the strikes are set regardless of future volatility - ie on the intraday all binary strikes are 10 pips apart (5 on usd/jpy) regardless of volatility - ie eur/jpy and gbp/jpy are usually more volatile but have the same strike distance on intraday binaries

[quote=bronson1017]Some general questions about trading the daily fx pair binaries:

  1. When considering trading daily fx binary straddles, would it be beneficial to average the daily fx deviation levels (price moves up & down) over say the past week to set profit targets going forward on the next day’s daily binaries? Possibly just to get a better chance on locking in some profit when we set our buy stops or sell stops…since we cannot sit by our computer 21 hours straight OR even trade fast enough when fast price moves are occurring? What deviation levels would you recommend?

  2. Or could we just historically compare past fx daily deviation levels to the fx daily binary strikes to get a good idea of which fx pairs crossed and hit the most strikes; up and down?

  3. Is Nadex contemplating any type of alert system on price movement so we can be alerted to a price level that we wish to be alerted at?

  4. Do all forex pairs and their fx strike levels have built in equalized price moves by Nadex…equalized between all the 8 different forex pair strike levels?

Thanks Darrell[/quote]

55

Excellent

look forward to it

[quote=dca78_00]Ronin - sorry I have been on vacation for awhile. I was going to post a thread on the strategy I tested (which was profitable, but not by much) here in the forum, so that others here might be able to improve on it. All my stuff is on my computer at home, will get it written up and on the forum in about a week.

The basic idea was to put a set of trades on that had a decent risk/reward, using the deviation levels as a starting point, that could be placed and left on until expiry. I wanted a set it and forget it type approach. So, I looked at the deviation levels as essentially containment. 63 percent or so of the price movement should be contained by the .7/-.7 deviation levels. So I was SELLING the .7 and BUYING the -.7.

The problem I found, though, was that sometimes price doesn’t extend far enough in either way to fill your price. When I get back home, I have all the screenshots of the week I tested this to show what I am talking about.

I only tested this on the US 500, I didn’t test on FX. Although, having traded FX in the past, the more volatile nature of the FX market may get better fills.

Once I get back, I will post a new thread on this so it doesn’t get buried.

Have a great new year!!![/quote]

56

Not sure if this would be profitable enough over the long run…but it is worth checking out…Ideally you close when it hits the deviation level and have a 1:1 risk reward ratio with a 50% or better win ratio…

Again i mainly do straddles on news events…

[quote=ronin50]Is this the only feasible way to hit those +7 and -7 deviation strikes? wait for the market to retrace to previous day settlement? It seems the strategy outlined in post #45 would be difficult on Forex pairs as it seems the pairs often open far away from the previous day’s settlement.

Are there specific indices and pairs that might be easier to stick with in terms of higher likelihood of them starting near or retracing back to previous settlement? Or is there a way to “Kentucky windage” placing these trades when the market is trending near a deviation level already?

Thoughts?[/quote]

57

Another note with all the JPY easing going on all the JPY pairs have been moving a lot lately

58

@dca78_00 I like the thought process, please let us know how it goes.

I was thinking of something similar due to the dev levels being very accurate. This is hard to explain via typing so let me try.

What if you set limit orders at the .5 and -.5 level for 35/35 (or 40/40, still trying to figure out the best use).

Ie buy when its -.5 and sell when it .5 at those levels, so buy limit order at 35 and sell at 65.

Also, buy 2 contracts at the .7 and sell 2 contracts at the -.7.

If /ES (or whatever it is that you trade) trades down to the .5 level and below your 35 buy one contract will be filled and you could have a -.7 contract take profit order in for one contract to auto buy back at the 60-65 range. limiting your risk to a smaller loss. If the /es retraces back to settlement you would be ITM on the 35 bought for a gain of $65. The bought one contract at the -.7 level would have almost covered your initial 2 contracts on both sides (~$30 including fees). If the market continues lower you would profit on the remaining open contract in the $90 area. You would lose the 35 from your bought position and your 2 contracts in the opposite direction, but that would have been mitigated by $30 dollar profit closing out on the first -.7 stdev contract (so roughly losing $25 but making $65) The downfall would be closing in between those levels…its something I am working on. Sorry I know it may be confusing

59

Hi Darrell. I’m an active stock options spread trader & I would like to expand my horizons with binary options. I am a total newbie in this area. Besides opening up an account with Nadex, how do I get started with my education?. What webcasts do u recommend I should check out so I can place my 1st trade (with real $) within the next 30 days? Thank U. Theo

60

I almost get what your saying lol

why not give a real example ie on a morning using deviation levels strikes price etc…

If you can do that and lay out es at this - deviations at this - strikes bough/sold at .5 and .7 are this and their price is this

then i did this when this happened etc…

and i think i can help you develop the strategy further if i just get what you are putting together.

[quote=kfegan0088]@dca78_00 I like the thought process, please let us know how it goes.

I was thinking of something similar due to the dev levels being very accurate. This is hard to explain via typing so let me try.

What if you set limit orders at the .5 and -.5 level for 35/35 (or 40/40, still trying to figure out the best use).

Ie buy when its -.5 and sell when it .5 at those levels, so buy limit order at 35 and sell at 65.

Also, buy 2 contracts at the .7 and sell 2 contracts at the -.7.

If /ES (or whatever it is that you trade) trades down to the .5 level and below your 35 buy one contract will be filled and you could have a -.7 contract take profit order in for one contract to auto buy back at the 60-65 range. limiting your risk to a smaller loss. If the /es retraces back to settlement you would be ITM on the 35 bought for a gain of $65. The bought one contract at the -.7 level would have almost covered your initial 2 contracts on both sides (~$30 including fees). If the market continues lower you would profit on the remaining open contract in the $90 area. You would lose the 35 from your bought position and your 2 contracts in the opposite direction, but that would have been mitigated by $30 dollar profit closing out on the first -.7 stdev contract (so roughly losing $25 but making $65) The downfall would be closing in between those levels…its something I am working on. Sorry I know it may be confusing[/quote]