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  1. #1
    Legendry Member Michael Hodges's Avatar

    NADEX Trading Strategies And Techniques !!!

    Attention, this is not the thread to ask questions about how reliable NADEX is, or about NADEX CFTC US regulation, or about depositing, or withdrawing or anything else about the brokers OPERATION. Those questions should be directed to this thread, here... Broker Discussion: NADEX

    This thread is for discussions about NADEX trading strategies. NADEX is binary options so it is all about directional trading, NADEX is also exchange trading so encompasses so much more. Payouts are higher, excellent, but the opportunity for credit, hedging and advanced strategies are what really make NADEX so much of a better choice. So, if you have a question about how to trade NADEX, or want to share your tips on how you trade NADEX feel free to contribute.

    My basic and number one tip for NADEX traders is this; when trading directionally only use the AT THE MONEY strike prices because they will most closely mimic the outcome of spot style trading.

    This is the link to our article, How To Trade NADEX Binary Options, which goes over the basic mechanics of the trade.
    Last edited by Michael Hodges; 08-24-2016 at 04:53 PM.

  2. #2
    Legendry Member Michael Hodges's Avatar

    I've Been Experimenting With NADEX Strangles on 5 Minute Options !!!

    I've been experimenting with strangles using the 5 minute options. I don't try to go for big moves but instead look for options that are slightly out of the money (to sell) and are slightly in the money (to buy) in order to get "safer" returns. The payouts are not as big as when trading directionally but do not require the asset price to move at all, in fact, these do better when prices do not move.

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    The basic thing I do is look on the trading chart where it shows the available strike prices. If I can get at least $10 selling the put, and the call for less than $90 it's good. This means for sure one of the trades will close in the money.. if both do then I make about $20 per trade, not a lot but considering the relative safety, ease and speed of the return I'm OK with it.

    I usually buy in at the same time, or as close together as I can, but you can try to "leg" in, that is, buy one and then wait a bit and buy the other. This technique works if you can buy the long position when prices are lower, and then sell the short position when prices are higher. The same idea is true for exit, you can hold to expiration if you'd like, but if prices are bouncing around and you are able to close either or both positions at a profit then that is OK too.

    Also, watch out for when prices may begin to move, it may be necessary to close one of the positions early in order to cut losses/preserve whatever profits you can.

    Also can be done on longer term expiry, here is a look at a possible trade with end of week expiry. Potential profit is about $60 here if both close ITM. The best part of this strategy is that both positions have a buffer of room they can move before moving OTM. so long as you don't lose more than $25 when closing the short position, or $36 when closing the long position, you will make money.

    Click image for larger version. 

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  3. #3
    Rookie Member charlamange1st's Avatar
    Thanks for posting this thread Michael, I hope it stays active. Been doing much better lately in my Nadex demo thanks to your advice and the encouragement of others here. I've been testing the old iron butterfly as well. I've been using the GBP/JPY and it's been going very well. Around 7pm central, I choose a end of day expiry which expires at 10pm. I pick two ITM strikes and sell between $15-$25 and buy between $75-$85. I aim for $40 profit w/o taking out fees but I'll accept $30-$35. The market seems pretty quiet at this time with plenty of strikes for sale and no news to throw things out of whack. I've been prepared to jump out if necessary on either end, but I've yet to have to do that this week

    Quick question Michael, how do handle risk management with Nadex? If you are going strictly ATM trades it's somewhat straight forward, but if your taking ITM trades or OTM for that matter there are so many more variables to consider. I like taking ITM trades where probabilities are so much more in my favor but my up front costs are higher. It's so much more complicated than traditional BO. Do you have a formula that you use?

    Thanks,
    Ed

  4. #4
    Legendry Member Michael Hodges's Avatar
    indeed I do, indeed I do. It's basic position sizing technique same as is used with standard options.

    If I am trading 2% of my account, and 2% of my account = $200 then my trade size should be as close to $200 without going over as I can make it.

    NADEX trades in lots, the lots price differently as you have noted, ITM are more expensive OTM are less expensive. So, if the strike I want to buy trades at $35 a lot, and my trade size is $200 then I need to buy $200/$35 lots or 5.7 lots. If the lots traded at $50 per then that would mean buying 4 lots.

    In this case I would round up to buy 6 lots since it's so close. If it were like 5.2 lots then I would round down... 0.3 lots is less risky to go over my limit than 0.8 lots, does that make sense?

    However, for you using the iron butterfly you would take the total cost of your trade. If it cost you $120 to get into the spread then you would only want to trade one at time with a position size limit of $200.

    Can you explain a little more about how the iron butterfly you are trading works?

  5. #5
    Senior Member DaVychi's Avatar
    Hi folks,would like joint to this thread,I did start practicing on demo.I am quit fresh on Nadex,of course have many questions in the future.
    Regards Darius

  6. Thanks Michael Hodges thanked this post
  7. #6
    Senior Member DaVychi's Avatar
    Is there any different between trading on demo and live account(of cuorse except real money)...

  8. #7
    Rookie Member charlamange1st's Avatar
    Hey Darius, I'm wondering the same thing since I've yet to go live.

    Michael, thanks for your formula technique on risk management. I'll be stashing it in my tool box. As far as the Iron Butterfly trade, I'll break down how I set up the trade tonight. Sorry I can't provide the fancy screenshot pics like you being just the nave that I am.

    Like I mentioned before, I always use the GBP/JPY. Around 7pm central I look at the strike prices for the end of day expires which expire at 10pm central. I look at the strike prices that are 40 pips apart. I sell the put anywhere between $15-$25 and then buy the call anywhere between $75-$85. Then I just monitor the chart starting with the 30 min for the first two hours, then the 15 min for the last hour. I haven't had to bail out yet, but if I don't feel right and the price is dancing in the danger on either end of the channel during the last hour, I aim to bail out with a loss that that would be covered by the profit on the other end of the butterfly. Tonight, I sold a put at 132.80 for $28 and bought a call at 132.40 for 85.5. The price coasted in the channel for the full three hours and I walked out with $42.50 minus $3.60 for the fees. Of course this is not foolproof, but Still a solid method so far. I'm going to dabble in your 5 min strangle strategy tonight, I'm a candle burner and practice on the Asian session a lot.

  9. #8
    Legendry Member Michael Hodges's Avatar
    Quote Originally Posted by charlamange1st View Post
    Hey Darius, I'm wondering the same thing since I've yet to go live.

    Michael, thanks for your formula technique on risk management. I'll be stashing it in my tool box. As far as the Iron Butterfly trade, I'll break down how I set up the trade tonight. Sorry I can't provide the fancy screenshot pics like you being just the nave that I am.

    Like I mentioned before, I always use the GBP/JPY. Around 7pm central I look at the strike prices for the end of day expires which expire at 10pm central. I look at the strike prices that are 40 pips apart. I sell the put anywhere between $15-$25 and then buy the call anywhere between $75-$85. Then I just monitor the chart starting with the 30 min for the first two hours, then the 15 min for the last hour. I haven't had to bail out yet, but if I don't feel right and the price is dancing in the danger on either end of the channel during the last hour, I aim to bail out with a loss that that would be covered by the profit on the other end of the butterfly. Tonight, I sold a put at 132.80 for $28 and bought a call at 132.40 for 85.5. The price coasted in the channel for the full three hours and I walked out with $42.50 minus $3.60 for the fees. Of course this is not foolproof, but Still a solid method so far. I'm going to dabble in your 5 min strangle strategy tonight, I'm a candle burner and practice on the Asian session a lot.
    yeah, we're doing pretty much the same thing. Targeting a pair of strikes or more that are itm, long and short side, with a higher chance of closing ITM than directional trading. I like it. The cool thing about using short term expiry, 20 min, is the profits come quicker, the longer term is cool though because of more chances to adjust position... ie take profits, double down, leg into the spread for maximized returns etc... so many possibilities it makes my head spin.

  10. #9
    Legendry Member Michael Hodges's Avatar
    Quote Originally Posted by DaVychi View Post
    Is there any different between trading on demo and live account(of cuorse except real money)...
    the trading is almost exactly the same. One difference I know though is how orders are triggered. In live trading if you put an order in at the market, or at a limit and the limit is reached, your order is matched or filled by a market maker. In demo trading when your order is entered an order made by a real trader has to be triggered in order for your order to trigger, it might not get filled just because prices match, at least that's how I understand it to work.

  11. #10
    Legendry Member Michael Hodges's Avatar

    20 Minute Strategy Trade Set Up - Potentials, Ideas, Thoughts !!!

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    This is an example of potential trade set ups for NADEX using a hedging strategy in 20 minute trading. The idea is to make gains with as little risk as possible using in-the-money option strikes for non-directional trading. non-directional means the trade makes money if the underlying asset has little to no movement.

    in the example above the asset price for the SPX is between the 2172.45 and 2171.45 strike prices. For this trade we target those strikes for a higher risk/higher return trade, and then the next two strikes out for a lower risk/lower return trade.

    In the higher risk set up you buy the just slightly in the money call for $56.25 (returns $43.75) and sell the 2172.45 call for a credit of $20.75. This trade comes with a potential return of $64 if it closes with both options in the money. If one or the other option closes out of the money the returns look like this

    if put closes out of money - Return $43.75 on call, lose $79.25 on selling the put for a net loss of $35.
    if the call closes out of the money - Return $20.75 for sale of put, lose 56.25 for loss on call for a net loss of $35.50. So, potential return is $64 with a potential loss of $35/$35.50 means 180.28% return on risk. Pretty nice.

    In the lower risk set up you buy the deeper in the money call for $82 for a return of $18.00. You sell the out of the money put for a credit of $4.50 and risk $95.50. This trade comes with a potential return of $22.50 if it closes in the money. If not, returns look like this.

    if the put closes out of the money - returns on the call are $18.00 minus loss on the put of $95.50 gives a net loss of $77.50.
    If the call closes out of the money - returns on the put are $4.50 minus loss on the call of $82.00 give a net loss of $77.50. So, potential returns are $22.50 with risk of $77.50 or 29% return on risk.

    Thoughts; The return on risk isn't great, but the risk the trade will close out of the money are much lower than with the first scenario. The first scenario has the best risk/reward, but the least chance of closing in the money. The trick is to set up a spread of strikes similar to the least risky, wider spread, set up with a risk/reward closer to that of the first set up.

    This is possible by legging into a trade. Legging into it means buying one position when the time is right, and then selling the other when the time is right, or vice versa. Looking at the chart above it is clear that price action would have allowed this type of strategy, buying the call when asset prices are below 2171 and selling the puts when it is above $2172.

    In the case of this example the options closed with prices just below 2171.45 so the risky trade made a loss of $35.50, off-set by the profits of the less risky trade for a net loss of only $13.50. This loss could have been easily overcome if the second position, the less risky one, had received $18 for the put, or paid only $74 for the call. If both had been entered at these prices a profit of $13.50 would have been the worst case scenario for a complex four strike position.

    My final thought, using the 20 minute options I might want to target immediately, with the first 5 minutes?, a more risky trade with closer to the money strikes, and then wait to enter the less risky spread later in the options lifespan, maybe in the last 10 or 5 minutes. After entering the first position, quickly figure out the maximum loss for the position and then use that knowledge to help you choose strikes/prices for the second, less risky, spread.

    if put closes otm loss= profits from call - risk of selling put
    if call closes otm loss= credit from put - cost of buying put

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