By Darrell Martin
News of inflation and consumer spending will be out on Friday, July 15, at 8:30 AM ET. The Bureau of Labor Statistics will release the Consumer Price Index (CPI) and Core CPI. The first is the change in the price of goods and services consumers purchased. The second excludes food and energy from the numbers as they account for around 25% of the CPI, can be volatile and may distort the data. The majority of inflation is determined by consumer prices.
While the CPI information focuses on the pricing, the Retail Sales and Core Retail Sales numbers show consumer spending, the change in value of retail sales. The Core Retail Sales excludes automobile sales due to auto sales accounting for 20% and can be volatile as well possibly distorting the numbers.
Traders watch these reports as indication of inflation and consumer spending numbers provide insight to the economy. There could be opportunities to trade EUR/USD using capped risk spreads listed on the Nadex exchange. Nadex is based in the US, is regulated by the CFTC and lists binaries as well as spreads.
For this trade setup, enter as early as 7:00 AM for the two hour intraday EUR/USD spreads expiring at 9:00 AM ET. The strategy is an Iron Condor, where one spread is bought below the market and one spread is sold above the market. The ceiling of the bought spread should meet the floor of the above spread and be where the market is trading at the time. Each spread should have a profit potential of approximately $15 or more for a combined profit potential of $30 or more.
A spread has a floor and a ceiling, representing the capped bottom and top of the portion of the market, which can be traded long or short. There is no profit or loss past those points. The Iron Condor is a strategy that is used when the expectation is the market could range, stay close to where it is, or make a move, but then pull back. The trader is able to buy below the market and sell above the market, because of the implied volatility built into the pricing.
Max profit is when the market settles right between the spreads at settlement. If the market isn’t right between the spreads at settlement, the trade can still profit. For every pip away from the center the market is at settlement, it is one dollar less in profit. There are two breakeven points for this trade, 30 pips up and 30 pips down, and when the market settles anywhere between those points, the trade profits. With Nadex, the trader can exit at any time as long as there is a bid or offer for them to exit. Stops should be used at the 1:1 risk/reward ratio points, approximately 60 pips up and 60 pips down.
Free trading education is available at www.apexinvesting.com.
