What do I do if the Spread Is To Narrow For the Profit Target Goal When Trading News

#1

Quick thanks to Darrell for providing Apex and all the trading education!!!

i have a question about some news related spreads I put on during the 5 July 2013 NFP. They actually turned out net green, however I am curious if I set my take initial “take profit” targets too high after entry. I ended up holding them all till expiry.

Spread 1 USD/CHF Buy .9580-.9680 (10AM) Price = .9602 . Risk = $22 USD/CHF Sell .9480-.9580 (10AM) Price = .9551 . Risk = $29

On this spread, I tried to set the buy side “take profit” at 22 + 29 + 29 == 80. After watching the news spread vid, I thought that would be entry price, .9602 + .0080 , or .9682, which was out of range, so I set profit at .9679. obviously that never hit. Would that have been the proper “take profit” ?

As it was, it seems we didn’t get the expected NFP number for the bigger underlying move, and perhaps I should have re-targeted my take profit at perhaps floor + 80, which may have filled profittable, though no doubt the near break even on settlement at .9630, or 50 bucks on a 51 dollar risk ( not counting fees ) , sure was nice !

The reason I wonder about my take profit “math”, was my other trade was much greener:

spread 2 USD/CAD Buy 1.0510-1.0610 (10AM) Price = 1.0540 . Risk = 30 USD/CAD Sell 1.0410-1.0510 (10AM) Price = 1.0486 . Risk = 24

Once again, focusing on the side that was ITM (the buy ) I figured the “take profit” should be 24+30+24 = 78. So I set a take profit at 1.0540 + .0078 == 1.0618, it was outside the spread, so i set it to 1.0609. Once again, take profit not hit, and held to expiry. Settled at 1.05910, or 81 bucks on a risk of 54.

All this said, it seems if I were to set all my set profits to the take profit math ( risk + cost of other side ), and add just to the floor/ceiling, as opposed to the entry price, that too might be a profitable strategy, maybe not 1:1, but still profitable?

#2

Yes it the take profit is wider than the spread it will need to be inside the spread - ie if it is above the floor i would probably put it 10 ticks below the ceiling or 10 ticks above the floor - OR look at longer term expiring spread (ie 3 pm) that is wider to straddle with so long as the risk is not that much more.

You P/L on the first example is correct. Now you could leg into the spread to lower cost (its down buy it moves up sell)… or you could try to get in ealirer (before implied volatility makes them more expensive or later as time has elapsed) These are all variations of the play but you will get a sense of them over time and doing it a lot.

NFP is a much larger move than normal so you may need to look at a longer term spread if its outside the 1:1 as ideally you want the 1:1 on a news trade.

The goal is to net your total risk. So if your risk is $50 you want to make $50 + the loss on the other side. One that that is important to remember is taht when you get a “payout” email from Nadex that is a total payout meaning the risk on say the long trade and the net/pl - so if you received $50 and risked $25 then you made a $25 profit. If you lost $25 on the other side that had a payout of $0 - then you netted a breakeven.

Yes the NFP numbers did not hit the desired divergence from the forecast. Often when this happens I target an exit at around breakeven. I have brokeven on a lot following the plan - say 60% breakeven 30% profit and 10% lose some (rarely do you lose all on spread straddles on news) thats not a bad system. This is a get in look for big move get out or if no number either 1 get out at breakeven or follow apex system to trail stops in the direction of the news/trend.