By Darrell Martin
The New Housing Price Index for Canada will be released Thursday, January 12, at 8:30 AM ET. Rising house prices motivate investors; therefore, the index is a read on the health of the housing industry and a news event traders pay attention to. The event can be traded with a capped risk Nadex USD/CAD spread. The strategy can also have stops for more controlled risk.
The Iron Condor is ideal for this kind of event based on prior market response. The average move after this news is approximately 30 pips. To set up the strategy, a spread is bought with a $15 or more profit potential and a spread is sold also with a $15 profit potential. The market should be trading right around where the ceiling of the bought spread and the floor of the sold spread meet.
After the market moves, there is typically a pull back in the market. As time expires and the market is in the direction of one of the spreads, that spread will collect premium and show profit. When the market pulls back, the other spread will also start to collect premium and show a profit. The amounts will fluctuate as the market moves and time expires. The market being anywhere between the two breakeven points of the trade at settlement will mean profit for the trade.
With a combined profit potential of $30 or more, the breakeven points for this trade are 30 pips up and down from where the market was at entry. Beyond those points, the trade will start to lose, with the 1:1 risk reward ratio points being 60 pips above and below from where the market was at entry. This is where stops should be placed to further control risk.
The market returning in its pull back, all the way to center between the two spreads, brings a max profit for the trade. The Iron Condor can be set up with more contracts, as long as there is the same number on each side of the trade to balance risk.
To find just the right spreads quickly, for this trade, at 8:00 AM ET, spreads are released for the 10:00 AM ET expiration and their risk reward values can be easily seen on the spread scanner. Use the filters to get the right market and time of spreads up and then narrow your choices by reward potential shown. For a view of the spread scanner, see below image.
The spread scanner is accessible free for all traders, as well as free day trading education at Apex Investing.