By Darrell Martin
What will the market bear? This is often the way items are priced and thus pricing is an important indicator if not the indicator for inflation. Tuesday, April 11, at 4:30 AM ET, the UK’s Office for National Statistics will release news on the latest price indexes including the following, Consumer Price Index, Producer Price Index, and Retail Price Index. Consumer prices, which include goods and services purchased by consumers, make up the majority of overall inflation. When inflation takes over, the Central Bank then considers raising interest rates to contain inflation. Traders watch this kind of news and trade the markets accordingly.
Nadex spreads using an Iron Condor strategy is a great way to take advantage of the implied volatility present just before scheduled news trades. The Iron Condor collects premium as time expires. It’s a good strategy for when a market makes a move but then pulls back and returns close to where it was at entry, which is very often the action of the market just after news.
For this trade opportunity, entry can be as early as the evening before, at 11:00 PM ET for 7:00 AM ET expiration. Two Nadex GBP/USD spreads are traded. One is sold above the market and one is bought below the market. The floor of the sold spread should meet the ceiling of the bought spread and be around where the market is trading at the time. Each spread should have a profit potential of around $17 or more for a combined profit potential of $35. Implementing the easy-to-use Apex spread scanner for trading Nadex, the risk reward on each spread is identified at a glance. See below for example.
Stops should be placed in the event the market takes off but doesn’t make a pull back. Spreads have capped risk but stops keep the risk down to a 1:1 risk reward ratio. For a $35 profit potential, doubling that in pips would be 70 pips, which is where the stops should be placed above and below from where the market was at entry. At those points, one spread would lose $70 while the other would profit $35 making it a $35 net loss. Max profit is achieved when the market pulls back to center between the spreads at settlement.
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