Low Volatility Signals Changes In Strike Widths At Nadex

On September 9, the VIX had a one-day spike of 40 percent. This is a rare event. As reported in an article in Real Money, statistics showed that there were 33 times with a VIX rally greater than 20.7 percent. When this happens, it is usually followed by a bounce the next week and then a pullback the following week. That would be this week. Another rally should be 15 days ahead.

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Wednesday the VIX closed at 13.30 after reaching a low of 12.98 and a high of 15.65. This is down from where it was last week. The VIX is designed to reflect how investors view the next 30-day future as far as volatility in the stock market is concerned. It is often referred to as the market’s “fear gauge.”

Usually, the markets are slower in the summer and begin to pick up after the U.S. Labor Day holiday. This may not be the case this year. Although today’s close was low, it isn’t the lowest the VIX has seen this month. September 8 had some lows in the upper 11’s, which probably allowed that one-day 40 percent spike to happen. On September 9, the market had reached its high, but continued to climb on Monday. When that happens, Nadex has the right to add more strikes to give more trading options and possibilities, even when the market blasts through the preset opening levels of strikes. 

The volatility started to drop after just a couple of days. When the volatility drops, the value of the instrument will not fluctuate as dramatically. It will change at a steadier pace over a period of time. Because of this lower volatility and the lack of movement in the underlying markets, Nadex exercised its rights to change strike widths during the past week. All strike widths on the 20-minute intraday Indices were tightened up. Even during regular trading times, the strikes are narrower around lunchtime on these 20-minute binaries. This is to help adapt to the slower moving times of the market.

As an example, the notice posted by Nadex said, “the strike width for all 20-Minute Intraday U.S. Tech 100 Binary contracts expiring 10:00 A.M. ET through 11:20 A.M. ET, and from 2:40 P.M. ET through 4:00 P.M. ET was changed from 3 to 2, and for expirations between 11:40 A.M. ET and 2:20 P.M. ET was changed from 2 to 1.” Notice the reduced width from three to two for all hours except during the hours of 11:40 A.M. ET to 2:20 P.M. ET. During the lunch trading hours, it was further tightened from two to one.

The adjustments made by Nadex encourages trading by providing more opportunities with more strike levels. Whether the market is slower or volatile, range bound or trending, there are always great trading opportunity options around the clock when trading on Nadex.

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