By Darrell Martin
Every month, Statistics Canada reports on the overall change in selling price of new homes. This scheduled news event is called the NHPI, New Housing Price Index. Investors are attracted to rising house prices making this an indicator of a healthy housing industry. Traders watch this indicator news and, in reaction, can move markets with their trading, making this an opportunity for a trade.
Using an Iron Condor strategy with Nadex USD/CAD spreads, provides a limited risk setup with an opportunity to profit on the pullback of the market returning after a reactionary move. One spread is bought below the market with the ceiling where the market is trading at the time, and one spread is sold above the market with the floor where the market is trading at the time. The ceiling of the bought spread should meet the floor of the sold spread, and be where the market is trading at the time of entry. Market reaction to this news event tends to be a move and then a pullback, thus making this a high probability strategy.
The NHPI is released at 8:30 AM ET Thursday, February 9. Entry into the trade can be as early as 8:00 AM ET for 10:00 AM ET expirations. The floor and the ceiling of the spreads are where risk and profit stop. Each spread should have a profit potential of $15 or more for a combined profit potential of at least $30 for the trade. More spreads can be traded as long as there is the same number on each side of the Iron Condor strategy. If spreads are not available with the right ceiling and floor parameters and profit potential recommendations, then don’t force the trade.
Stops further manage the risk and should be placed in case the market reacts with a big move and doesn’t pull back. They should be placed at the 1:1 risk reward ratio points, which for this trade is around 60 pips above and below where the market is trading at the time of entry. The market settling anywhere in between the two breakeven points of 30 pips above and below from where the market was at entry brings in some profit. Max profit is made when, at settlement, the market is right between the two spreads.
The profit and loss made on each spread can be seen below on the following chart, based on where the market settles.
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