Advanced Binary Options Trading Strategy With Nadex Call Spreads [Video]
And in this article, I want to show you an advanced binary options trading strategy using Nadex Call Spreads.
In the previous articles, I’ve shown you how to trade binary options and a simple binary options trading strategy using Bollinger Bands.
In this article, we’ll take it to the next level, so let’s get started….
Nadex Call Spreads.
For this advance binary options trading strategy we will use Nadex Call Spreads.
The main difference between “regular” Binary Options and Nadex Call Spreads is this:
When trading Binary Options, you are simply choosing whether a market is trading above or below a certain level.
In order to trade this Binary Option, you pay between $0 and $100.
In this example, let’s say you’re paying $40.
If you are right, you’re getting $100 back, i.e. you made $100 – $40 = $60.
If you are wrong, you get $0 back, i.e. you lost $40.
When trading Nadex Call Spreads, there are a few more elements to this:
You don’t only have ONE strike price – you know have TWO, and they are called a FLOOR and a CEILING.
When trading call spreads that expire daily, the max payout is $400 instead of $100.
And it’s not an “all or nothing:” As long as prices are trading above your entry, you can still make money.
Here’s an example:
Let’s say the Dow Jones is at 26,900 right now.
And we want to trade a Nadex Call Spread with a floor of 26,800 and a ceiling of 27,200.
The price of this call spread will be a little more than $100 since there’s some premium in the spread.
So let’s say we have to pay $120 for the spread.
If the Dow closes above the ceiling, i.e. 27,200, we would get $400 back. So we make $400 – $120 = $280.
And if the Dow closes below the floor, i.e. 26,800, we would get $0 back. So we lose the amount we paid, i.e. $120.
But here’s the cool thing:
For every point that the Dow closes above the floor, we make $1.
So if the Dow closes at 27,000, it would be 200 points above the ceiling. This means that we’re getting $200 back. We paid $120 for the spread and we get $200 back, i.e. we made $80.
As you can see, there are many advantages to call spreads vs. “regular” Binary Options:
It’s not an “all or nothing” scenario: As long as prices close above our entry price, we make money.
Our loss is still capped to the amount we paid for the spread. In this example, it’s $120.
Our profit is also capped, but it’s no longer $100. In this example, it’s $400, which allows us to create a trade with a better risk/reward ratio.
Advanced Binary Options Trading Strategy.
Here’s where the magic happens:
When we combine Call Spreads with Binary Options, we’re getting a very nice risk/reward ratio!
Here’s an example:
Let’s say we’re buying the call spread I mentioned above.
Here’s the risk graph for this spread:
And let’s say that at the same time, we are selling a Binary Option with a strike price of 26,900 for $54.
This means that we get $100 when the Dow closes below 26,900, so we keep the $54.
And if the Dow closes above 26,900, we get nothing back, so we lose $46.
I know… this can make your head spin but bear with me.
This is an advanced strategy, and it’s VERY cool!
So here’s the risk graph for the Binary Option:
Can you see what’s happening?
We’re making money on the Nadex Call Spread when prices move above 26,900.
And we are making money on the Binary Option when prices move below 26,900.
Yes, you read that right:
We make money when prices move above 26,900 and we make money when prices move below 26,900.
Let that sink in for a moment! How cool is this?
Yes, there’s a possibility that we can lose money. Let me show you the combined risk graph:
As you can see, there’s a small area when we lose money:
If the Dow closes at exactly 26,900, we would lose $111.
But how likely is that?
If we enter this trade in the morning when the Dow is at 29,600 – how likely do you think it is that the Dow CLOSES at this exact level?
Not very much, right?
Here are the possible scenarios:
As long as the Dow closes between 26,900 and 27,000, we lose a little bit of money.
If the Dow closes above 27,000, we are making money, up to $188.
If the Dow closes between 26,800 and 26,900, we are making money, up to $88.
If the Dow closes below 26,800, we lose $7.
As you can see, in most scenarios we’re making money.
The worst-case scenario is when the Dow closes exactly where it opened, which is very unlikely.
The Next Step.
I know: This is an advance binary options trading strategy and it can make your head spin.
That’s why I put together a more in-depth training for you. And the best: It’s free.
Trading Futures, options on futures and retail off-exchange foreign currency transactions involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more of your initial investment. The lower the day trade margin, the higher the leverage and riskier the trade. Leverage can work for you as well as against you; it magnifies gains as well as losses. Past performance is not necessarily indicative of future results.
Editors’ Picks.
EUR/USD: 100-DMA defends bulls around 1.1450.
EUR/USD edges higher past-100-DMA, tests pullback from three-month-old horizontal resistance. Hidden bullish divergence, sustained trading above 100-DMA keeps buyers hopeful. October-November lows add to the upside filters, 50-DMA also tests sellers.
GBP/USD holds in corrective territory ahead of key events later in the week.
GBP/USD is sideways in Asia as markets consolidate ahead of catalysts later in the week. UK GDP and US CPI could move the needle in financial markets. It's been one of those starts to the week where there is no momentum one way or the other as the markets digest the events of the prior week and await the next catalyst.
USD/JPY tracks rebound in US Treasury yields above 115.00.
USD/JPY takes the bids to refresh intraday high around 115.20, consolidating the week-start losses as Tokyo opens for Tuesday. The yen pair’s recent run-up could be linked to the cautious optimism in the market, as well as recovery in the US bond coupons after a sluggish start. It’s worth noting that mixed data at home and virus woes challenge the recent advances ahead of the US trade numbers.
Editors’ Picks.
EUR/USD: 100-DMA defends bulls around 1.1450.
EUR/USD edges higher past-100-DMA, tests pullback from three-month-old horizontal resistance. Hidden bullish divergence, sustained trading above 100-DMA keeps buyers hopeful. October-November lows add to the upside filters, 50-DMA also tests sellers.
GBP/USD holds in corrective territory ahead of key events later in the week.
GBP/USD is sideways in Asia as markets consolidate ahead of catalysts later in the week. UK GDP and US CPI could move the needle in financial markets. It's been one of those starts to the week where there is no momentum one way or the other as the markets digest the events of the prior week and await the next catalyst.
Gold battles support-turned-resistance near $1,820 amid firmer yields.
Gold buyers jostle with short-term key hurdle following the biggest daily gains in three weeks. Sustained trading beyond 200-DMA joins RSI, MACD conditions to keep buyers hopeful. Market’s cautious optimism helps gold buyers amid light calendar ahead of US CPI, trade, geopolitics can entertain short-term traders.
Solana price hits make-or-break point following 50% gains.
Solana price action has seen persistent bullish pressure over the past three trading days. As a result, buyers continue to push SOL higher inch by inch, precisely on top of the single greatest resistance cluster on its daily Ichimoku chart.
Tesla: Is this a dead cat bounce?
Tesla rallied well on Friday to end the week solidly after some volatile swings. Meme stocks took a battering, and high growth names did not fare much better. Overall, it was a wild ride for the markets with hawkish moves from all the main central banks sending yields sharply higher.
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Trading foreign exchange on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading and seek advice from an independent financial advisor if you have any doubts.