Advanced Binary Options Trading Strategy With Nadex Call Spreads.
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.
If you would like to learn more about this strategy, then you can watch the training at https://www.rockwelltrading.com/binary.
And if you missed any of the previous articles, just click on one links below to read it now:
Share.
Related Posts.
Stock Market For Beginners 2022: Step By Step Guide.
Risk Free Option Trading Strategies: Do They Really Exist?
How To Build A Trading Plan That Works: Step-By-Step.
How To Find Value Stocks vs. Growth Stocks: IMPORTANT For The Wheel.
Leave a Reply.
I really ejoyed the videos very helpfull. I am new at trading or wanting to trade binary opions. doing the Nadex Demo Practicing what you have taught me I don't have a lot of money to work with so I am going to have to start small and hopefully be able to reivest with house money as they say.
That is awesome to know! ? Let us know if you need help.
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.
tastyworks, Inc. (“tastyworks”) has entered into a Marketing Agreement with Rockwell Trading Services, LLC whereby tastyworks pays compensation to Rockwell Trading Services, LLC to recommend tastyworks’ brokerage services. The existence of this Marketing Agreement should not be deemed as an endorsement or recommendation of Rockwell Trading Services, LLC by tastyworks and/or any of its affiliated companies. Neither tastyworks nor any of its affiliated companies is responsible for the privacy practices of Rockwell Trading Services, LLC or this website. tastyworks does not warrant the accuracy or content of the products or services offered by Rockwell Trading Services, LLC or this website. Rockwell Trading Services, LLC is independent and is not an affiliate of tastyworks.
Copyright © 2005 – 2022 Rockwell Trading Services LLC, USA . All rights reserved. Phone: 512-337-1885 , 100 Commons Road, Suite 7 #343, Dripping Springs, TX 78620.