by Kathy Garber & FairValue Trader
Harmonically speaking Nasdaq futures, NQZ14 is the underlying instrument used for Nadex, shows price is in between opposing emerging patterns with line in the sand levels at 4284.5 or 4237.5, this offers a bull spread with these as the extremes, beyond these levels increase the probability directional bias to harmonic pattern targets as noted on the chart.
There’s a potential pull back to 4266.5 for a support test but with current upside bias to 4279.25. It will be at this level that has a probability of rejection, how much rejection is the key. So a counter trend trade opportunity at 4279.25 with the risk either just above 4279.25 or above 4284.5 and the targets at 4266.5, 4255.5 and 4237.5. Anything below there increases the probability of testing 4211.25 or lower.
If you prefer to trade with the trend, then a pull back to 4266.5 or breakout of 4279.25 offers entry opportunities for an upside bias to the ideal target of 4313.5 and scaling points, or regions to protect the position at 4290.5 and 4302.5.
For this week, I will be presenting two possible bullish ways to trade the Nasdaq (^IXIC:GIDS) using binary options that trade on the Nadex exchange.
First I can wait for NQZ4.CME to trade down to the 4266.50 support level , I would then consider purchasing the Nadex US Tech 100 (Dec) 4362.00 weekly option that will expire Friday at the 1:15 EST early close. I would want to purchase this option at a price of $66.00 or lower; this would give me a $34.00 profit or 50% reward on risk if NQZ4 closes above 4262.00 on Friday.
Or if I believe that the NQZ4:CME will continue higher before pulling back to support and will be targeting the 4313.50 area then I may buy the Nadex US Tech 100 (Dec) 4310.00 weekly option that will also expire at Friday’s 1:15 close. I would want to buy this option at a price of $33.00 or better with the potential to earn $67.00 if NQZ4 closes below 4310.00 price Friday. This trade gives the potential to earn 2:1 reward on risk.
Nadex options have a $100 payout, and profit is determined by the difference in the cost of the option and the $100 payout, while the risk is limited to the amount paid. When shorting a Nadex option, the profit potential is the premium the option was shorted for, while the risk is the difference in that premium and the $100 payout.
I only chose to look at a two possible options on one instrument, but Nadex offers hourly, daily and weekly expirations based on several indexes including US and international indexes, energy, metals, agriculture, and forex products.
The diversity of products and expirations allow me many possibilities when choosing a strategy and risk/reward profile that suits my view.
Obviously, the futures markets can be very volatile, but using the binary options offered by Nadex limits my risk to the premium paid at the time the trade is first initiated, so my stop-loss is already built in.
Remember, if your trade starts working in your favor or against, you have the option to liquidate early; but at expiration, only one party (buyer/seller) can receive the $100, and the other, nothing.