The news of an OPEC deal broke early Wednesday morning with a planned production cut of 1.2 million barrels a day, which boosted Oil prices about 7%. And that momentum continued into Thursday with additional gains. The possibility for volatility this week was obvious to most traders with OPEC news having the potential to break both sides of the market.
Here is a chart of the indicative index, which is based off the NYMEX January Crude Futures prices, as of Monday night at approximately 6:30 p.m. ET. Along the right axis are the weekly binary options available, which expire Friday at 2:30 p.m. ET.
With the underlying Crude Futures trading at about $46.85 at the time there were a variety of possible trades to choose from, all of which would have defined risk coming into an expected volatile week for Crude.
Now, let’s fast forward to this morning around 7:30 a.m. ET. With OPEC announcing a deal and Crude Futures exploding to the upside, the market has obviously shifted dramatically in the span of the last 72 hours. Even after giving back some of its gains of the last few days, Crude is still up about 10% on the week.
While not every binary option to the upside looks like it will expire in the money, you could have also chosen to take profits after the market showed a possible top Thursday afternoon. You can always trade the binary options prior to expiration. Here is a snapshot of the same market on Thursday at about 3:30 p.m. ET, with about 23 hours remaining until expiration of the weekly binary options.
You can see the extra value in some of the higher strike point binary options yesterday as with compared with this morning. This is both because of the extra time remaining as compared with this morning, and also that the market was about $0.40 higher at the time.
You wouldn’t have had to necessarily be correct in predicting the direction of the move, as there is always the ability to buy a binary option above the market while simultaneously selling a binary option below the market. When initiating this type if multi-leg trade you can benefit from volatile moves in either direction, while still keeping your risk defined.
The next time you see a market, commodity, or currency setting up for a big week of news and volatility consider weekly binary options on the Nadex Exchange. Anytime markets are moving with volatility is a great time to try out a demo account with practice funds to see for yourself the types of trades available and how they react to underlying moves.
Note: Exchange fees excluded for calculations.