In addition to trading binary options, Nadex also offers Bull Spread Options. Many of you asked if they did regular credit spreads so last night I watched all the videos on the products they offer. Although they do not offer “credit spreads” they do offer something that I think is a little better – Bull Spread Options. As most of you know, bull typically means upward movement (bulls go up, bears go down). Why do I think they are better? Because it is more of support and resistance trading, which I love, with a larger reward than a simple credit spread (plus I like that they only charge ninety cents per side/per contract).
Bull Spread Options
So for example, this morning on the Nasdaq higher timeframes, the ATR stop is blue indicating that the market will move up. On the 45 minute, they have tried to test the ATR stop (which is blue) but no sellers came in (although as we know this can change with the market reports this morning). So I lookup a bull spread on Nadex. They have a one available with a range of 3590-3690. The 3590 is referred to as the floor and 3690 is the ceiling. Price is right at the 3590 area (floor). This means that I could enter with price very close to the floor. How much risk would I incur? As you can see from the image below, my total risk would be $16 and my potential profit is $84.
So my worst case scenario is $16 (loss) and my best case scenario is $84. That makes my potential risk to reward 1 : 5.25. I have 3 higher timeframes telling me that price will go up and volume on the 45 minute saying it will go up. I also have an ATR stop supporting price to go up. It could still go down, but I think the probabilities are that it will go up. So I enter long. Now if price makes a huge wide bar down (as we know is possible, I am locked in with only a $16 risk) and since this contract does not expire until 4:15 pm today and we also know that the wide bar will more than likely retrace, I would still potentially be able to exit with even lower risk if the wide bar did retrace.
Now if I decided I wanted to short this same area, what would the profit potential vs reward be? As you can see in the image below, the profit potential is only $14 and the risk is $86. This indicates to me that I am in the wrong range because price is too close to the “floor”, which would be my potential profit target if I opted to sell.
So I go back and look for a range that has a ceiling that is close to my price. As you can see from the image below, by changing the “ceiling”, the max profit is now $83 and my risk changes to $17.
In my opinion, a Bull Spread Options just makes more sense than a credit spread (even though they are very similar). Perhaps, it was just the lingo, but it actually took brain effort for me to remember whether to sell or buy and then I had to make sure there was enough profit potential to allow for the commission (which changed according to the instrument traded). I understand floor and ceiling with no brain effort (I am getting older), and the commission is a straight ninety cents per contract. So anything over $2 and I’m in profit.
Basically, when looking at the bull spreads, just remember for longs, you want to be closest to the floor (the ceiling is your profit potential).
To go short, you want to be closest to the ceiling (the floor is your profit potential).
Plus, I can trade futures, commodities, and forex (which are MY FAVORITE MARKETS), from one single account. Since the THD indicators offer great projection capabilities, I have added a very limited risk trading methodology to may trading arsenal.
This is a great way for new traders to learn how to read charts and trade because the risk is easily controlled and precision is not as important as when trying to try a typical future contract. Plus, for those that are risk intolerant, it allows you to trade without being obsessed over potential losses. After all, losing ten to twenty a pop is much easier on the psyche than losing $100 to $200 a pop.
I highly recommend starting with Nadex Bull Spread or Binary Options for new traders. I just wished this were around ten years ago when I started — would have saved me a lot of money and tears!