Expensive spreads during the NFP?

#1

lol I just knew there was going to be a catch. apparently Nadex marks up the spread dramatically (by 20 pips aside from the usual 7 or so on the 100 point bull spreads) on Usdyen during the NFP

#2

in fact its not even 20 its more like 30 both ways ($60 basically on 1 contract you have to overcome before you make any profit) on the 2 hour/100 pip spreads

#3

Were you trading an ITM, ATM or OTM spread? Do you have a screenshot of what you are talking about?

A few more facts would help…

Brad

#4

I was attempting to do a usual straddle using the top and bottom bull spreads (100 points, 2 hours long). Typically there is no more than 20 pips to cross before coming into profit in either direction. During the ones that coincide with the NFP though, Nadex makes the spread much much bigger, up to about 60 pips that need to be crossed before making any profit in either direction

#5

Justin a few things as with many things there is not a catch it’s just a matter of understanding the instrument and how to trade it.

  1. Nadex doesn’t mark anything up or down they are an exchange The Nadex “box” spread price is set by market makers and other traders.

  2. A spread uses a simple black Scholes Model the pricing is the same as any option I have shown this time and time again.

  3. Is is an option. The biggest factor in an option is implied volatility (IV) (aka expected movement) when the expected move is larger this will be reflected in price. This can be seen on any equity option right before earnings release. This is not abnormal it’s how all options work.

  4. As stated at the top of the NFP news plan (in capital letters) if the premium is to high then do an iron condor. We did a ton of these last week. I saw the premium was high on eurusd also. You don’t have to be the payer of the premium you can be the collector buy buying the lower and selling the upper. I have several videos on the news plan posted under last Saturday (pay special attention to the radio show archive) before nfp that shows how this is done. I saw the high premium as stated and did an iron condor as stated on the plan and was profitable. If it’s to expensive for a straddle don’t complain take advantage of it and collect the premium.

(I updated title to reflect the issue)

#6

Wouldn’t the maximum potential loss be great with an iron condor?

#7

Not necessarily. And not in this case. i.e. I had lower risk on the iron condor than the straddle. Make sure to watch the three training videos. If your trading news straddles you are going to want to fully understand this strategy so you know when not to do a straddle and what you can do to take advantage of higher premium during news.