Several Benefits When Trading Straddles For News Events

Straddle strategies using Nadex spreads can be ideal when trading news events for several reasons. A straddle is low risk and does not require stops. It is prepared to profit if the market goes up or down. Spreads can be entered ahead of time for events that are released in the middle of the night. For news events where the market’s reaction tends to take off in one direction, a straddle is set to the average move for that event to catch a significant amount of profit.

Wednesday, December 14, at 4:30 AM ET, the Average Earnings Index, Claimant Count Change, and Unemployment Rate will be released for the UK. The three reports have to do with cost of labor increases, the number of claims for unemployment benefits, and any change in the number of unemployed. These reports tend to get a good moving response from the market. This can generate a high probability trade using a straddle strategy.

Two Spreads For The Straddle Strategy

To set up for this trade, two Nadex GBP/USD spreads are entered as early as 11:00 PM ET the evening before for the 7:00 AM ET expirations. One spread is bought, with the floor being where the market is trading at the time, with a maximum risk of $20. The other spread is sold, but has its ceiling where the market is trading at the time, also with a maximum risk of $20. Combined, the trade should have a maximum risk of only $40. This amount is also the profit goal for a 1:1 risk reward ratio.

Take profit orders need to be set as well for exiting once the market reaches the $40 profit point for this trade. For this trade, with the aforementioned profit goal, those points would be either 80 pips below or 80 pips above. The take profit orders should be placed as soon as the trade is entered. Those points are where the trade would make a $40 profit. When one side profits, the other side will be losing. However, in the event the market retraces, leaving the other side on could potentially make some profit as well.

More spreads can be traded as long as the trade is balanced with the same number of spreads on each side. If there are no spreads available meeting the parameters, then there is no trade.

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