How To Quickly Find Spreads To Trade The News


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By Darrell Martin

Once every month, ADP Research Institute reports on the change in the number of non-farm related employed people from the previous month. Results for November will be released Wednesday, November 30, at 8:15 AM ET. Employment news is always being watched by the markets, which makes this news event tradable, with the right strategy and market.

Based on past market reaction to this news, it’s been found that the market tends to react and make a move but then retraces. An Iron Condor strategy can collect premium and profit when the market pulls back from its initial reaction. This strategy employs two Nadex EUR/USD spreads. One spread is sold above the market, but with its floor where the market is trading at the time. The other spread is bought below the market, but with its ceiling where the market is trading at the time.

If the market reacts and goes long, the lower bought spread can profit and on the retrace, the sold upper spread can profit. Conversely, if the market reacts and goes down, the sold upper spread can profit and on the retrace, the bought upper spread can profit. These scenarios show that when the market pulls back to center between the two spreads and settles there, max profit is made.

How are the spreads chosen for this setup? Typically, the market moves on average around 30 pips. With that in mind, each spread should have around $15 or more profit potential for a $30 or more combined profit. More spreads can be traded, as long as there is the same number of spreads on each side of the Iron Condor.

Traders can use the Spread Scanner, designed intuitively to quickly and easily identify spreads, which meet desired parameters. Spreads can be filtered by market, expiration time and profit potential. For a glance at the layout, see the below image.

For an Iron Condor with a combined $30 profit potential, the market can move 30 pips above where it started or below 30 pips and still be at breakeven. When the market settles between those two points, then the trade profits. The amount of profit is based on how far away from center between the two spreads it is. For every pip away from the center between the two spreads, it is $1 less dollar in profit until the market reaches 30 pips above or below, at which case the trade is at breakeven.

Stops should be placed where the market is at a 1:1 risk reward ratio point. For this setup, that would be 60 pips above or below. With these numbers, the market has a 60-pip wide range, where if it settles there, the trade will profit and a 120-pip range before the trade takes on a $30 loss.

The spread scanner is free for all traders, along with day trading education at www.apexinvesting.com.