The diagnostic deviation tables show a settlement price for crude of 90.87 as of 8am today. It never changes during the day. And the market price = settlement price at expiration. So what use us there for the Settlement Price and these deviations when watching the current price and using the deviations as potential exit points?
Box Straddle Settlement Price and Deviation Levels Dec 28
rnfowler57
#2
To clarify: The deviations have no relation to the current price or the entry price so why use deviations that are only related to a fixed settlement price that will not be set until expiration?
darrell
#3
I think you have it backwards. Settlement is set at previous day. Deviations are based on a deviation from yesterdays settlement.
Expiration has nothing to do with settlement as there are multiple nadex binary/spread expirations through the day week (though some of them do coincide this has nothing to do with the price.) Today’s settlement at “expiration” i.e. 4:15 PM of the ES will be used for calculating deviation levels for 24 hours after it.
Settlement is the exchange based settlement price of the previous day so it will not change as that is the price. i.e. ES settlement price is posted here on CME’s website: http://www.cmegroup.com/trading/equity-index/us-index/e-mini-sandp500_quotes_settlements_futures.html “http://www.cmegroup.com/trading/equity-index/us-index/e-mini-sandp500_quotes_settlements_futures.html”
A gap fill trade is when the market opens at a different price then settlement and you fade the gap to settlement - that is one use - many traders use close or last trade but this is an error a gap fill trade should always be based on the settlement price
If you are below settlement and the market is moving up, or above it and it is moving down, the settlement is a price target like any other deviation level as the market is drawn to this price level as it is the previous days settlement (simply how the market works)
Also the market will often bounce between settlement and a deviation level - i.e. today the NQ went down hit a -.5 deviation and back up to settlement then back down again to just below -1 dev on NQ
On oil yesterday it bounced between the -.5 deviation and back up to settlement
It is incorrect to state that deviations have no relation to entry price…The deviations can be used as entries for reversals…also they are a great confirmation when the E price is right near the deviation level
You are Correct the deviation have no relation to current price, except as to measure how much the current price has deviated from the settlement price
The settlement price is based on the previous day…the deviation are the expected move based on implied volatility in underlying markets options prices for a 1 day move…those deviations are deviation from the settlement price for a 24 hour period.
The deviation let you know how far the market will move up or down on a given day and where it may pivot - but to have a deviation you have to have a starting point to deviate from…that starting point is the settlement price of the previous day so see deviations for the current day
I hope that helps answer your question, if not let me know.
Darrell