Trading the Jobs Number with Weekly Binary Options

Trading the Jobs Number with Weekly Binary Options
Trading the Jobs Number with Weekly Binary Options
Trading the Jobs Number with Weekly Binary Options Getty Images

This Friday we will see the release of employment situation data. Traders always focus on this number as it can cause higher than normal volatility in markets. Traders often speculate on the number as there is always the potential for a large move. One drawback to trading the jobs number is that it is difficult to use futures or ETF’s to trade the number without taking on a large amount of risk. Traders with under-capitalized accounts generally cannot afford to take on the risk necessary to hold a speculative position through the jobs number. Luckily for those traders Nadex binary options offer a solution to their problem. Using binary options and a simple trading plan a trader can make speculative plays ahead of the jobs number with a small amount of capital and a well-defined level of risk and reward.

First a trader will use the futures options market to determine how much movement is expected after the number. To calculate expected movement a trader will look at the price of the weekly at the money straddle. This is simply the price of the weekly at the money calls added to the price of the weekly at the money puts. This week, with the CME E-Mini S&P 500 futures trading at 2065 we will look at the price of the May 6th weekly 2065 straddle. This straddle is currently trading around 27.00 points indicating an expectation for a move higher or lower of 27 points by Friday’s close. Using this measure we will calculate implied closes for Friday.

Upside Target = 2065 + 27 = 2092
Downside Target = 2065 – 27 = 2038

Using these levels a trader can set up a weekly binary options trade. Let’s look at an example of a bearish and bullish setup.

Bearish Trade: Selling the US 500 > 2034.5 Weekly binary option for $85.00
Risk: $15 per 1 lot
Reward: $85 per 1 lot

This is a trade that sets up with a fantastic reward to risk ration and profits if the market breaks out of the implied range to downside.

Bullish Trade: Buying the US 500 > 2094.5 Weekly binary option for $15.00
Risk: $15 per 1 lot
Reward: $85 per 1 lot

This trade sets up with the same reward to risk ratio as the bearish trade setup. Both of these binary options trades offer trader a much more risk efficient way to express a bullish or bearish view on the market this week. Traders can use the price of the at the money straddle in options on futures to calculate these implied moves at any point in the week. Using these levels a trader can set up trades like he ones above with much less risk and capital than they would need to trade futures and ETF’s. If you are interested in trading the jobs number or other catalyst events but lack the necessary capital you should really be considering binary options.

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