By Darrell Martin
Once news becomes a headline with a story, the markets no doubt have reacted. It is extremely difficult, if not impossible, to trade news headlines. Scheduled news events however, are another matter. Since they’re scheduled with a look back at past market reaction and a little planning for the right strategy, a scheduled economic news event can be traded.
Tuesday, June 13, at 4:30 AM ET, the UK’s Office for National Statistics will release the Consumer Price Index and Producers Price Index reports. Based on previous market action, this event can be traded using an Iron Condor strategy.
The advantage of the Iron Condor is three-fold. One, it doesn’t matter which direction the market moves after the announcement, and two, the risk is capped and additionally managed by trading Nadex spreads and setting stops respectively.
The third advantage is that the trade can be entered at 11:00 PM ET Monday evening for 7:00 AM ET expirations. One Nadex GBP/USD spread is bought below where the market is trading by about 17 pips or more, making the profit potential around $17 or more. The ceiling of the bought spread should be where the market is trading. The other spread is sold above where the market is trading, also by about 17 pips or more. The floor of the sold spread should meet the ceiling of the bought spread and be where the market is trading at the time. This setup should have a combined profit potential of at least $35 for the trade.
Trading a spread means capped risk at the floor and ceiling. There is no losing or profiting past those points, which denote the range of the market being traded long or short. Additionally, there is no getting stopped out at the floor or ceiling. Stops can be placed and for this trade, should be placed around the 1:1 risk reward ratio points, which are double the profit potential points up and down. In this case, that is 70 pips above and below from where the market was trading at the time of entry.
The trade makes profit when the market pulls back after any reactionary move from the news event, and returns close to where it was at entry. If the market settles anywhere in between the breakeven points of 35 pips above and below, from where the market was at entry, there is profit made. Max profit occurs when the market returns to where it was at entry, between the two spreads.
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