How To Trade NADEX Binary Options
NADEX Binary Options
How NADEX Binary Options Are Priced
NADEX binary options are not priced in the same way as European style binary options. NADEX options are worth $0 or $100 at the time of expiration. If your option is in the money you receive $100 and if it is out of the money you receive $0. During the options life its value will fluctuate along with the underlying asset. The price you pay is the spot price of the option at the time of purchase. Deep in the money options are usually worth close to $100 making them an attractive sell. Options far out of the money are usually worth far less. Some trade as low as $0.25 or lower. These are attractive options for those who prefer to buy and are expecting a big move.
- NADEX binary options are worth $0 or $100 at expiration. The price you pay is the spot price of the option, somewhere between $0 and $100. Your potential profit is $100 minus the amount you risk. If you buy an option for $65 and receive $100 at expiration you are risking $65 for a potential $35 (53.8%) profit. If you sell an option and receive $65 in credit you are risking $35 for a potential 185.7% profit.
Binary Market Analysis
Binary Market Analysis is a blog and website run by my friend and fellow trader Michael Hodges. He has a lot to say about NADEX and why it is the best choice for U.S. traders. Michael has strategies and insights into how best to profit trading NADEX 0-100 style binary options.
Four Steps To Trading NADEX Binary Options
There are four basic steps to trading NADEX binary options. It is very easy once you become familiar with the platform.
- Pick your underlying- NADEX offers about 3 dozen assets based on the major issues traded today. This isn't as much as what a European style broker will offer but no big deal. All the major indices are included as well as 8 currency pairs, 7 commodities and 2 economic events.
- Pick your expiry- NADEX has expiries on an intraday, end of day, end of week and sometimes end of month basis. At this time you will have to pick your strike which is different from European style options. Euro style binary options only have one strike, the price of the underlying at the time of purchase. NADEX binary options are listed with multiple strikes whose prices fluctuate with the price of the underlying. The price you pay is the current market price as listed.
- Pick buy or sell- This is a major difference from European style. With Euro style binary options you buy a call when you are bullish and a put when you are bearish. NADEX binary options trade in a fashion akin to futures and spot forex. When you are bullish you buy the option and when you are bearish you sell it. Buying is fairly self explanatory; when you are bullish on an option you buy. Selling takes a little getting used to. When you sell a binary option you receive the bid price. This a credit position in which you risking $100 minus that amount. There is more info on that later on.
- Pick trade size- With European style binary options your trade size is whatever amount you choose between the broker's minimum and maximum trade. NADEX options are different. In this respect they are akin to equity options. Each option is based on a lot of 100 shares. Each share is priced between $0.00 and $1.00 making each option worth 100 x the option price. An option that is priced at $0.35 costs $35 dollars to buy and receives $35 if sold. Minimum trade size is one lot, to make a bigger trade buy or sell as many lots as you would like, up to the maximum.
NADEX Has Dozens Of Underlying Assets
Step 1 Pick An Underlying
The first step is one of the easiest to make, pick an underlying. I am of course assuming you are already trading something else and have an idea of what you are doing. If not I suggest picking one of the major indices, one forex pair and one commodity to keep in your watch list. Watch them, learn them and then trade them but that is a whole different article. I trade the S&P 500, the EUR/USD, the USD/JPY, the DAX and the Nikkei 225. These are all available through NADEX. NADEX options have different names but they are all based on the actual underlying. The S&P 500 is called the US 500, the DAX is called the German 30, currency pairs are easier because they are just called EUR/USD like everywhere else.
- NADEX has all the major indices represented. You can trade the S&P 500, the Dow, the Russells, the NASDAQ, the DAX, the Nikkei and several others.
- NADEX has 8 major forex pairs. Forex trading opens at 6PM eastern time every Sunday giving early access to international forex markets for U.S. binary options traders.
- NADEX has 7 commonly traded commodities. Gold, oil, silver, corn and others. Expirations coincide with the closing of the representative U.S. exchange such as the NYMEX, COMEX and CBOT.
- NADEX has binary options on 2 economic events. Traders can speculate on the releases of weekly initial jobless claims or on the monthly release of the Fed Funds Rater.
Example Of NADEX Intra-Day Expiry
NADEX Has Multiple Strikes For Each Expiry
The picture to the right shows a listing for all the expiries for the US 500 (S&P 500) at 3PM. You can see that this asset has strikes set in $2 increments. This will be different for each option according to market. This is one of the hardest parts of trading NADEX, or any kind of options. Depending on your risk tolerance, time frame and market stance you could profit from any one of them if your analysis is correct.
- NADEX intra-day options expire at set times periodically throughout the day. Expiries vary from asset to asset.
- NADEX daily binary options expire at the end of each trading day according to the representative market. Commodities are based on the U.S market where each is primarily traded. Equities at 4:15, some commodities and forex at 3PM, Oil at 2PM. Currencies trade just about around the clock though and have multiple expiries.
- NADEX weekly binary options expire at the end of the trading week. This would be Friday or the last business day of the week in the event of a holiday. The time of expiry is the same as if it were a daily.
- NADEX monthly binary option expire at the end of the trading month. Like weekly and daily they expire at the end of the day on the last day of the month.
NADEX Order Screen For Binary Options
Step Three, Buy or Sell?
PIcking buy or sell is not as hard as it may sound. Of course buying is easy. If you are bullish on an option, that means you think the underlying is going to close higher than the strike price, then you buy. If you think it isn't going to happen you sell.
Let's look back at the last picture. All the options for the S&P 500 at 3PM are listed as US500> the strike price. All NADEX binary options are listed this way. If you are bullish and think the US500 is going to be >1535 at 3PM then you buy. If you think there is no chance that the US500 going to be >1535 at #PM then you sell. The picture to the right shows a NADEX order ticket. This is an order to buy a call at $33.50 with an end of day expiration and strike greater than 1545.
Selling NADEX binary options is a credit position. You receive the bid price and risk the difference between that credit and $100. Because all NADEX options are cash secured you must maintain that amount in your account until expiration. Other than that there are no other margin requirements trading NADEX, anyone with an account and enough cash to cover the risk can sell NADEX options.
Trading Bearish With NADEX
Pick Your Trade Size
As I described above NADEX binary options don't trade in quite the same was as European style options. NADEX options trade in lots, each lot represents 100 shares of stock. Prices are quoted on a per share basis but options are purchased in lots. This means that an option priced at $0.47 really costs $47 to buy and receives $53 if sold. If you want to trade $500 dollars with an option you must by 10 lots of this option ($47x10=$470). If you are selling this option the same multiplier affect is applied to your risk and the amount of cash you will have to keep in your account. Once this is done all that is left to hit order.
The picture to the right is a NADEX sell order ticket for 1 lot of US500>1545. It will receive $30.50 in credit and will risk $100-$30.50. At the bottom of the ticket you can see the max profit and loss of the option.
NADEX Economic Events Binary Options
NADEX Has Binary Options On Economic Events
One of the exotic instruments gaining popularity in the binary options world is economic events. These are option positions on whether or not something will happen. For example, NADEX offers binary options on two different events. These are the Fed Funds Rate and weekly Jobless Claims. Traders can choose positions based on these numbers. If the market expects the FOMC to raise the target overnight rate then traders can buy options reflecting that opinion. The same is true of jobless claims. Traders choose positions based on whether or not the weekly initial jobless claims figure will be greater than or equal a certain level. Multiple levels, strikes, are offered for both types of options. The example to the right shows an order ticket selling initial jobless claims at 355,000. This is a bearish position on claims that expects the actual number to be less than 355,000.
More by this Author
What is a hedging strategy? How can binary options be used to for a hedged position? Can binary options be used in a hedging strategy?
NADEX 20 minute binary options are a versatile tool for short term speculators.
NC is home to at least 8 species of woodpeckers. These birds are brilliantly colored and many are easy to attract into your back yard.