If using a market like GC or CL that generally move fairly big up or down or both each day, why could you not buy and sell a contract and buy and sell the spreads. Would that not give you a chance to catch profit up or down and all you have to do is beat the cost of the spread? Am I missing something or would that give you great odds to have a profit every day with minimal risk??"
Nadex Straddle Everything?
darrell
#2
That is a great question. However, define fairly big? Check out our deviation levels they will show you the expected up and down moves for the day they are built from the implied volatility int he underlying options market. Note nadex spreads/binaries are also priced using the implied volatility. So much of this movement is built in to the cost of the spread. You will need to make at least enough on one side to cover the risk on the other side to breakeven. Meaning to have a 1:1 risk/reward ratio you need to make the cost on the opposiing side plus the total risk (nice thing is you can do this on either side).
The more time there is the more the premium will be, the more IV in the market there will be, right before a news there will be more iv so often it will be more, and the closer you are to the floor or ceiling the more premium there will be (hence making two legs on a straddle more expensive.
The risk could be large if you lose over and over again because you buy maximum premium and it is priced in and the market expires between the spreads… Though the reward could be much larger.
So just buying and selling the daily everyday will probably not work that well. The market are very efficient in their pricing. That is why i focus straddles on news timed events (like in the p3 signals) where i know what is going to move and when it is going to move and how often it usually moves so i can pay for as little premium as possible and take advantage of huge volatility.
You could always try it on demo and see what happens…over the course of a day, week, month…but you will see more often than not it is not a winning strategy as it seems to just straddle everyday at the beginning of the day. Though there will be big winners there will also be more losers than you would expect. Try it out you will see.
Also check out the p3 signals they will get you going fast on how to straddle the markets.