On January 10, the USDA (United States Department of Agriculture) released the WASDE report and the Crop Production Annual Summary at 12:00 PM ET.
When this report is, released you usually see a massive move in the ags markets, like corn and soybeans.
To be directional during this time is extremely dangerous, as the moves can be massive.
As a trader, you could have decided not to take a direction on this report. Instead, you could have used a unique variable payout contract called a Nadex Spread. You could buy the upper spread and sell the lower spread to do a straddle. Some traders know about Nadex binaries, but they do not know they have a unique contract called Nadex Spreads.
You can use Nadex spreads to be directional, straddle the market on news reports, or even hege risk on futures and forex contracts with capped risk and massive leverage without any stops.
Nadex Spreads Are Simple Instruments With Capped Risk:
With a Nadex spread, there is a floor and a ceiling. You may buy or sell the spread. In all cases, your risk is capped and cannot increase and you cannot be stopped out of a trade (think call/put options), except with one day or less until expiration every single day of the business week.
You still obtain the massive leverage more often than a futures or forex contract and much more leverage than than stock margin (even better than day trading margin). The best part is you get access to this leverage without having the risk of ever receiving a margin call, since risk is capped and the full risk is put for magin up front. You can enter and exit before expiration.
Related: A Review Of The Successful Strangle On The U.S. Unemployment and NFP Report Using Nadex Binaries
Profit/Loss Value (Tick/Pip) on Nadex Spreads Are Easy:
On all spreads, every tick/pip is worth $1.00. A 1 tick move is worth a $1.00 increase or decrease in the spread.
This is great, as if you have ever traded futures or forex, you know the challenges that come with tick size and value. So you don't have to worry about quarters and 1/8ths of cents on futures and fx pip conversion etc.
NOTE: (A tick/pip is the minimum increment move that the contract bid/ask is quoted in, like on a stock quoted in cents and the minimum increment move is 1 cent).
Risk/Reward Of Nadex Spreads:
If you buy a spread, your risk is capped at the floor and the amount of risk is the difference between where you buy and the floor. If you sell a spread, your risk is capped at the ceiling and the amount of risk is the difference between the ceiling and where you sell.
If you buy a spread, your risk is capped at the ceiling (like a vertical spread on options). If you sell a Nadex spread, your profit is capped at the floor. Your profit or loss is determined by the difference between where you buy to enter and sell to exit, or where you sell to exit and buy to enter. Note the market does not have to expire in between the spreads floor and ceiling. If the spread expires above the ceiling on a buy, you obtain maximum profit. If it expires below the floor on a sold contract, you obtain maximum profit.
As a review of the corn straddle trade on January 10, 2014 see the spread charts and the chart of corn ZC 03-14 aka ZCH4 below.
With this trade you could have both:
Bought the Corn 410.0-430.0 (2:15 PM ET) Expiration contract for 412.4
The risk on the trade was $24 [412.4 (bought price) - 410.0 (bought spread floor) = 2.4 / .1 (tick size) = 24 ticks = $24 max risk]
The profit potential of the trade was [430.0-412.4 = 17.6 / .1 (tick size) = 176 ticks = $176 profit potential]
Sold the Corn 390-410 (2:15 PM ET) Expiration contract for 407.4
The risk on the trade was $24 [407.4 (sold price) - 410.0 (sold spread ceiling) = 2.6 / .1 (tick size) = 24 ticks = $26 max risk]
The profit potential of the trade was [407.4 - 390.0 = 17.4 / .1 (tick size) = 174 ticks = $174 profit potential]
As you can see, the bought spread flew up and through the ceiling, expiring at 2:15 at max profit of $176 per contract. The sold spread drifted down some and became worthless, losing the max $26 and stopped quoting as it was out of the money.
Returning you a profit of $150 on a $50 max risk, with no stop loss for a 300 percent return within 2 hours and 15 minutes.
Next Opportunity To Mark On The Calendar?
The next WASDE reports are scheduled to be released on the following dates in 2014 12:00 noon ET
January 10, February 10, March 10, April 9, May 9, June 11, July 11, August 12, September 11, October 10, November 10, December 10 (Source: http://www.usda.gov/oce/commodity/wasde/). The WASDE report alone can have a large impact on the ags markets and is worth reviewing past charts on corn and soybeans to see the price impact by the news.
The next Crop Production Annual Summary will be released approximately Januray 9, 2015, along with the WASDE report at 12:00 PM noon. (Source http://usda.mannlib.cornell.edu/MannUsda/viewDocumentInfo.do?documentID=1047
). Make sure to check both sites at the 1st of the year for the exact releaste dates and times for January 2015. The combination of both reports together is huge and is a trade that you want to be on the look out for if the price is right on the Nadex spreads or binaries to do a binary strangle or spread straddle. Definetely mark this one on your calendar!
You can use Nadex spreads to be directional, straddle the market on news reports, or even hege risk on futures and forex contracts day or night.
Remember, past performance is not a guarantee of future performance. This is not financial advice and should not be taken as such. The above example does not include exchange fees. Check the nadex website for a list of current fees.
Nadex is a US-based CFTC regulated binary exchange (the CFTC is who regulates the CME etc..). On Nadex binaries, the markets are open from as early as 6:00 pm ET to as late as 5:00 pm the next day, giving the ability to trade day and/or night on intraday, daily and weekly contracts. Traders can trade binaries on forex, US and international stock index futures, and commodities like gold and oil.
If you would like to learn more about trading Nadex binaries and spreads check out this 16 video course absolutely for free on Marketfy.
To see examples of trading on Nadex binaries and spreads, see these articles posted on Benzinga, click here.
To learn more about how to trade binary options and for indepth binary trading strategies, tools and trade rooms see ApexInvesting.com
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