By Darrell Martin
Released quarterly, the scheduled news based on Preliminary Nonfarm Productivity and Preliminary Unit Labor Costs can be high probability trades using the right instruments while implementing the right strategy. This news will come out Thursday, February 2, at 8:30 AM ET. Using an Iron Condor strategy with Nadex EUR/USD spreads, a trade can be entered at 8:00 AM ET for a 10:00 AM ET expiration.
One spread is bought below the market and one spread is sold above the market. With this setup, the Iron Condor is prepared to profit when the market makes a pull back from any reactionary move to the news release. The ceiling of the bought spread should meet the floor of the sold spread and be close to, if not at, where the market is trading at the time.
For this news trade and based on previous market moves to this news, a recommended profit potential of $15 or more is suggested for each spread for a combined recommended profit potential of at least $30.
The market can move one of three different ways and the trade will make a profit: It can move and pull back. It can remain where it is, not moving at all, or it can move slightly. As long as at settlement or exiting after some time has expired, the market is between the breakeven points, this trade will make a profit. The breakeven points for this setup is with a $30 profit potential are 30 pips up and down from where the market was at entry. The market can be anywhere in that 60 pip range.
If the market doesn’t move in any of the three mentioned ways, and it takes off and doesn’t pull back, stop limit orders should be placed after entry. Should the market move 60 pips up or down from where it was at entry, the trade would hit 1:1 risk reward ratio points. Meaning, at those points the trade would lose approximately the max profit potential amount, in this case $30 for the trade. To get a visual of how this works, take a look at the chart below. It shows the profit and loss each spread would have based on where the market was at settlement.
You can see from the image that max profit is when the market is right between the two spreads at settlement. Sometimes the profit potential could be more. If it is less, then there is no trade. Never force a trade. More spreads can be traded as long as the same number of spreads is traded on each side of the Iron Condor strategy.
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