Every Wednesday, Crude Oil inventory reports are released at 10:30am EST by the Energy Information Administration (EIA). The report measures the change in barrels of crude oil held by US companies. It’s not uncommon for the actual inventory reports to greatly miss the forecast projections from the analysts. When that happens, there can be wild swings in the price of crude oil.
With binary options, you are making a decision about the likely direction of the market relative to a strike price within a defined time period. If the price of the asset you are trading agrees with your opinion at expiry, the trade settles for $100 per contract. If it doesn’t, the payout is $0. You can always exit a position early if you want to take a partial profit, or to minimize losses if the trade is moving against you.One strategy for trading crude oil inventory news is to place an OTM binary option trade on either side of the underlying indicative price before the release of the news. Here’s an example of how this strategy was used on Wednesday. July 29:
Before the 10:30 crude oil inventory reports were released, the market was traveling sideways, straddling the 47.62 strike price. The following strategy was used:
- The 9:00-11:00am time frame for Crude Oil was selected for for this trade
- At 10:16am, two OTM trades were placed on either side of the underling price of the market:
- BUY Crude Oil at >48.42. Maximum risk $19.50, maximum Reward $80.50
- SELL Crude Oil at >46.82 Maximum risk, $20.75. Maximum reward $79.25
For this trade to be successful, one trade needs to expire in the money, and the other trade takes a loss. The maximum risk on the losing trade is subtracted from the reward earned on the successful trade.
The worst case scenario in this strategy is if the market doesn’t react to the news, and continues to trade sideways. In that event, you may wish to exit both trades to minimize losses, if possible.
At 10:30am the Crude Oil Inventory Report was released, badly missing estimates by over 4 million barrels. In an instant, the market shot straight up, making the BUY order good. It continued to climb all the way to the 11:00am expiration. The SELL order expired for a full loss. The net profit from this trade was $59.75 (exchange fees not included).