Many traders avoid trading at lunchtime because there is just not much volume in the market. With Nadex Binary Options, the "Iron Butterfly" strategy allows you to take advantage of low volume and a sideways-traveling market. While there are several strategies and indicators you can use, my strategy has pretty simple rules:
- Select the 11am-1pm EST time frame for the US 500 Index, which mirrors the emini S&P Futures Market (/ES).
- Draw support and resistance lines at the daily high (resistance) and daily low (support) prices for the market.
- Place a SELL order at the first strike price ABOVE daily resistance, and a BUY order BELOW the daily support line.
- Place a working/limit order that satisfies your risk/reward criteria. Since both of these pending orders are probably deep into the money. You may want to "leg into" this trade, and wait for the market to come close to you before you place your trade. The closer the market comes to your BUY and SELL strikes, the better your risk/reward will likely be.
- If both sides of your Iron Butterfly fill, it's time to manage the trade. If the market threatens one of your trade nearing expiration, you may wish to exit that leg to preserve some profit or minimize losses. The other leg will be good. If the market is chopping sideways between both strikes, then you may wish to just sit back, enjoy your sandwich and let both sides of the trade expire in the money for full profit.
- That's it. Straightforward and simple. Pleas bear in mind, there are a lot of ways to look at trading this strategy, and I highly recommend watching Christopher Wall's video at the bottom of this post. He does a great job of explaining Iron Butterflies in greater detail.
 |
| Click on Chart to Enlarge |
Trade Details:
Contract: US 500 (Mar) >2095.5 (1PM)
Expiration: Wed Feb 18 13:00:00 EST 2015
Direction: SELL
Quantity: 5
Price: 25.00
Trade Details:
Contract: US 500 (Mar) >2089.5 (1PM)
Expiration: Wed Feb 18 13:00:00 EST 2015
Direction: BUY
Quantity: 5
Price: 75.00
Both pending orders were deep in the money risking $75 to make $25, per contract. Time to be patient and see what happens.
The SELL order filled at 11:25am, when the market peaked. For the next hour, the market moved down and then sideways. It didn't look like the BUY order would fill. At 12:40, the market dropped just down far enough to fill the pending BUY order. Now both sides of the Iron Butterfly are in the market. Time to manage the trade.
With 15 minutes left in the trade, it was time to manage the BUY side of the trade. The SELL side appeared safe. At 12:45, the market spiked up briefly, making the BUY contract worth $50. If this trade were a live trade versus a demo trade, the smart move might have been to exit the BUY order for a guaranteed $50 profit. But this was a demo trade, and I wanted to see how the market responded to my rules. At 12:50, the market came down further, threatening the bottom leg of the Iron Butterfly before running out of gas and expiring in the money.
Both sides of the Iron Butterfly expired in the money for a gross profit of $250.00, less $18.00 in exchange fees for a net profit of $232.00. That will buy a nice lunch!
There are a lot of ways to implement this strategy. With just 6 of these trades under my belt, I won't trade this strategy live until I have at least 20 demo trades under my belt. But it looks very promising thus far. Special thanks to Christopher Wall and the Binary Trade Group for exposing me to this strategy.
About Christopher Wall:
Christopher Wall is an official trader and educator with The Binary Group (BTG). He trades mainly Binary Options using the NADEX exchange. Additionally, he makes LIVE Calls on opportunities for members of the BTG private Facebook group on a daily basis, along with other BTG instructors. BTG provides new and experienced traders with daily training sessions for trading Nadex Binary Options.training, and has helped so many in honing their trading skills.
More information about the Binary Trade Group:
More information about the Binary Trade Group:
- Thursday, Feb. 19 Advanced Trading Strategies (Part Three) 8pm-9pm CST Register Here
- For the full schedule of free February Nadex webinars, click here.
Curious about Nadex? Open a Free, 2-Week Nadex Demo Account!
Nadex is available to legal residents of the United States, Canada, Mexico and U.S. Territories
The Purpose of this Blog
Disclaimer
The opinions expressed in this blog are solely those of the author, and should not be construed as trading advice. I am not a registered or certified financial planner. There is a very high degree of risk involved in trading. Past results are not indicative of future returns. All individuals affiliated with this site assume no responsibilities for your trading and investment results. The indicators, strategies, columns, articles and all other features are for educational purposes only and should not be construed as investment advice. Information for futures trading observations are obtained from sources believed to be reliable, but we do not warrant its completeness or accuracy, or warrant any results from the use of the information. Your use of the trading observations is entirely at your own risk and it is your sole responsibility to evaluate the accuracy, completeness and usefulness of the information. You must assess the risk of any trade with your broker and make your own independent decisions regarding any securities mentioned herein.
