Strangling The Greek Parliament Vote

On August 14, 2015, the third bailout deal was finally reached giving Greece a €86bn bailout package. It has taken nearly seven months to reach this agreement.

The deal included some unpopular elements that probably still will require additional implementation. The Greek Parliament Vote, where parliamentarians determined whether to accept the bailout, provided a great opportunity to employ a strangle strategy.

If you were trying to trade around this news event as it was being announced, you may have been met with some market volatility. When news on a global scale such as this is released, it is bound to cause some type of movement in the market. The trick is determining which way it is going to go so that you can capture some of the potential profit.

You may theorize about what passage of the bailout will do to the euro. The world has become such a global society that everyone focuses on other country’s votes. You may have thought that if it passed, it could make the euro stronger or weaker.

By thinking this way, you find the fun part in all of this: trading, following news events, choosing proper strategies, analyzing charts. It was expected to pass, which it did. Will that cause the euro to be stronger because Greece will remain part of the EU? Will the passage cause the euro to be weaker because it will retain a country that cannot seem to pay its bills?

Expect Some Volatility
When this news was released, you expected some volatility. You might expect the market to go up as much as 100, if not 200 - 300 pips. It was not a scheduled news announcement with a defined time. However, by trading Nadex binary options with multiple expirations, you had a variety of assets to choose from to place your trade. The instrument to use would be the EUR/USD.

Strangle Strategy
The strangle strategy provides low risk when you expect a large move on the trade. This strategy is performed by selling the lower and buying the upper binary contracts. The market may fly up and then pull back.

Your Trade
After you inspected your charts and analyzed the prices, you determined the range you wanted to stay between was 1.21 for the high and 1.102 for the low. You found the prices that fit your trading goals, and you sold 20 of the 1.1025 contracts. Then you bought 20 of the 1.1275 contracts.

What Is The Risk? Where To Set Take Profit.
On the BUY side, your risk was $8.00 and on the SELL side, your risk was $11.50. There is an approximate $20 risk; ideally, you want to net a $20 profit on the trade. For this example The profit potential is $400.

To figure out where to set your take profit, you must first assume that one side will lose. You have determined that you want to net $20 profit per contract. On the $8 BUY side, if the market flies up $20, you will get the $8 you paid to enter per contract back, plus the $20, but if the market doesn’t pull back at all, you will lose the $11.50 you paid to enter on the other side.

You want to cover what that side will lose by adding that into the potential profit on the other side. Your addition problem now looks like this: $8+$20+$11.50=$39.50. $39.50 is the target amount that you want to put on your take profit ticket. You bought at $8 and your target is to sell back at $39.50. That amount will give you the $20 profit and cover the potential loss on the sell side of your trade.

Now let’s figure out the take profit target for the sell side of your trade. On this side, you sold at $88.50 and you want to recover $28. Simply subtract and set the buy back at $60.50.

This amount will give you the $20 profit, cover the $8 loss of the other side should it lose and give you back your $11.50. With binaries, when a trade is profitable and the contract is settled, the amount you paid to enter the trade is included in the payout amount.

This is an example of a way to play this type of trade and not have to babysit your computer. When there is news coming out that will cause a major move, the strangle is an excellent strategy to use. The Greek Parliament may continue to argue about ways to relieve their debt problems, but you now have another strategy to use for upcoming news events.

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